The impact of the registration system reform on firms’ cross-country investment: Empirical evidence from China

Abstract

This paper investigates the impact of the registration-based IPO reform—a pivotal initiative in China's capital market liberalization—on the interregional capital allocation of listed firms. Utilizing a panel dataset of A-share firms listed on the Shanghai and Shenzhen stock exchanges from 2008 to 2022, we employ a two-way fixed effects model to empirically examine the reform's effects and underlying mechanisms. Our findings reveal that the implementation of the registration-based system significantly enhances firms' cross-country capital flows. This effect remains robust across various specifications and robustness checks. Further analysis indicates that improved information disclosure quality and reduced financing constraints serve as key transmission channels through which the reform promotes capital mobility. Moreover, we document substantial heterogeneity in the reform's effects: the positive impact is more pronounced among state-owned enterprises, firms located in eastern China, and larger-sized firms. These findings provide novel evidence on the role of institutional reforms in enhancing capital market efficiency and regional capital reallocation.