NBER

Xin (Kelly) Liu

The Australian National University
Research School of Finance
Canberra
Australia

E-Mail: xin.liu@anu.edu.au
Institutional Affiliation: Australian National University

NBER Working Papers and Publications

June 2020A Liberalization Spillover: From Equities to Loans
with Shang-Jin Wei, Yifan Zhou: w27305
The opening of equity markets to foreign investment appears to generate an enormously large positive growth effect (see Bekaert, Harvey, and Lundblad, 2005) in spite of a relatively small role of such markets for financing investment in most economies. We propose a possible spillover channel from equity market opening to lower costs of bank loans, which helps to explain this puzzle. From analyzing loan- and firm-level data associated with China’s introduction of the Qualified Foreign Institutional Investors (QFII) program, we find significant support for this channel. Furthermore, we show that a reduction in the risk premium is an important mechanism.

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