Stock market liberalization and exports of small and medium-sized enterprises

The paper investigates the impact of stock market liberalization on the exports of small and medium-sized enterprises (SMEs). Using the launch of China’s Shenzhen-Hong Kong Stock Connect Program as a quasi-experiment, we apply a difference-in-differences design to examine how the relaxation of foreign investment in listed Chinese SMEs stimulates these firms’ exports. We find that SMEs qualified for the Stock Connect program are associated with a larger increase in export propensity and export intensity in the post-liberalization period than the control group of SMEs unqualified for the program. We also confirm that stock market liberalization increases foreign institutional investor investment and reduces SMEs’ financing constraints, thus encouraging risk sharing, providing more information and resources to SMEs, and increasing their willingness and ability to export. In addition, we show that the influence of stock market liberalization on SMEs’ exports is contingent on industry, firm, and executive characteristics that shape firms’ resource needs and their perceptions of risk and uncertainty associated with exporting. Finally, we provide modest evidence that stock market liberalization encourages outward foreign direct investment. Overall, our paper reveals the facilitating role of stock market liberalization in boosting SMEs’ exports, the underlying mechanisms explaining this relationship, and the contingency factors affecting the strength of this relationship.