Stock market liberalization and corporate exploratory innovation: evidence from China

Corporate exploratory innovation serves as the bedrock of technological revolution and is imperative for economic development. However, there is limited understanding of how stock markets facilitate exploratory innovation. This study investigates the impact of China's stock market liberalization on corporate exploratory innovation. Companies are inclined to increase the proportion of exploratory innovation following their inclusion in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect (Stock Connect) lists. The mechanism is that Stock Connect strengthens corporate governance and facilitates access to information and financing, which incentivizes management diligence and meets the resource requirements for exploratory innovation. Moreover, the effect of Stock Connect on exploratory innovation is more significant among non-state-owned enterprises. Our findings demonstrate that open capital markets foster open innovation.