Abstract: Whether the“Shanghai-Shenzhen-Hong Kong (SH-SZ-HK) Stock Connect” mechanism has promoted the innovation and development of the real economy is an important issue in the process of China’s capital market opening. Based on the DID model and taking the implementation of the stock connect as a natural experimental event, this paper investigates the impact of the capital market opening policy represented by the SH-SZ-HK Stock Connect on the innovation activities of enterprises. The findings show that the target firms after the implementation of the SH-SZ-HK Stock Connect have significantly increased the innovation input and the patent output quantity, which have improved their innovation performance. Further tests show that the effect of the SH-SZ-HK Stock Connect on the improvement of enterprise innovation efficiency is more obvious in the enterprises with lower proportion of institutional shareholding, lower degree of information transparency, narrower vision of the management, and more serious agency problems, which indicates that enterprise innovation can be promoted through such means as strengthening the governance effect of the foreign investors, improving the business information disclosure, relieving the agency problems in the innovation decisions, and so on. This conclusion expands the research of the results and the mechanism of the SH-SZ-HK Stock Connect event on the business innovation, tests the impact of this mechanism on the real economy, and provides theoretical reference for China to further promote and improve the opening of its capital markets.

Key words: opening of capital market, business innovation, foreign shareholding, SH-SZ-HK Stock Connect