Title page
Contents
Abstract 2
1. Introduction 3
2. Institutional Background 7
3. Theoretical Motivation and Hypothesis Development 9
3.1. A Simple Conceptual Framework 9
3.2. Hypothesis Development 11
4. Data 13
4.1. U.S. Monetary Policy Shock 13
4.2. Firm-level Variables 13
5. Estimation Strategy and Firm-Level Investment Results 15
5.1. Estimation Strategy: Difference-in-Differences 15
5.2. Validity of Empirical Strategy 16
5.2.1. Sample Selection 16
5.2.2. Parallel Trends Assumption 18
5.3. Benchmark Results for Chinese Investment 20
5.4. Additional Robustness Checks 25
6. Firm Heterogeneity: Hypothesis 2 26
6.1. Risk-sharing (Risk-premium) Channel 26
6.2. External Financing Channel 27
7. Positive Effects of the China Connect: Hypothesis 3 28
8. Conclusion 32
References 33
Appendix: Data Description Tables 38
Table 1. Summary Statistics: Connected vs. Unconnected Firms 17
Table 2. Parallel Trends Assumption 19
Table 3. Baseline Results: U.S. Monetary Policy, Chinese Corporate Investment, and the Connect 21
Table 4. Corporate Investment and FOMC Shocks: Global Financial Cycles 24
Table 5. Corporate Investment and FOMC Shocks: Risk-Sharing (Risk-premium) Channel 27
Table 6. External Financing Channel 28
Table 7. Investment, Risk Sharing, and the China Connect 30
Table 8. Stock Price Revaluations for Connected and Unconnected Firms 31
Table 9. Firm Performance, Financing Costs, and the China Connect 32
Figure 1. Chinese Capital Account Restrictions 7
Figure 2. Corporate Investment Sensitivity to MPSUS: Parallel Trends Assumption 20
Figure 3. Cumulative Abnormal Returns Around Announcement Day: Connected Firms relative to Unconnected Firms 29
Table A.1. Shanghai (Shenzhen)-Hong Kong Stock Connect Program Overview 38
Table A.2. U.S. Monetary Policy Shock: Summary Statistics 38
Table A.3. Firm-level Variables: Summary Statistics 38
Table A.4. Data Sample: Industry and Year Distribution 39
Table A.5. Variable Construction and Data Sources 40
Table S.1. Corporate Investment and FOMC Shocks: Robustness 43
Table S.2. Corporate Investment and Chinese Monetary Policy Shocks 44
Table S.3. Corporate Investment, U.S. Monetary Policy Shocks, and the China Connect: Alternative Definition of Connect Dummy 45
Table S.4. Corporate Investment, U.S. Monetary Policy Shocks, and the China Connect: Eliminate Periodic Adjustment to Indexes 46
Table S.5. Corporate Investment, U.S. Monetary Policy Shocks, and the China Connect: with Macro Controls 47
Table S.6. Corporate Investment and FOMC Shocks: Firm Heterogeneity 48
Table S.7. Cash Holdings and FOMC Shocks 49
Figure S.1. Dynamic Impact of Connect on Investment 42