Capital Market Liberalization and Corporate M&A Performance: Evidence from the Land-Hong Kong Connect

The implementation of the Land-Hong Kong Connect (LHKC) trading system is an important symbol of the maturity of China's capital market, and its economic consequences have been the center of attention for the government as well as academics. Based on this quasi-natural experiment, our study applies the multi-period double-difference-in-differences (DID) method to examine the impact of capital market liberalization on corporate M&A performance. We find that capital market liberalization effectively enhances corporate M&A performance. Mechanism tests find that capital market liberalization enhances corporate M&A performance by improving corporate stock liquidity, reducing agency costs and information asymmetry. The findings provide some empirical evidence for capital market liberalization and corporate M&A decisions.