Capital market liberalization and corporate employment: evidence from the Stock Connect scheme in China

This paper examines the effect of capital market liberalization on corporate employment. Using firms’ staggered inclusion in the Stock Connect scheme, we apply a difference-in-differences model to Chinese listed firms from 2009 to 2022. We found that capital market liberalization has a positive effect on corporate employment, and this effect is more pronounced among non-state-owned enterprises, firms with higher perceived uncertainty, and firms located in regions with limited local financial resources. Mechanism tests reveal that this effect operates through extended institutional investor horizons, eased financing constraints, and improved corporate expectations. Further analyses show that capital market liberalization improves firms’ labour investment efficiency and has positive effects on income-related labour outcomes. These findings provide new evidence on the real economic consequences of financial openness from a labour-market perspective and highlight the role of capital-market opening in shaping labour allocation among specific types of firms.