Abstract: With the help of the Shanghai-Hong Kong Stock Connect coming into effect as an exogenous event, this paper constructs a difference-in-difference model and overcomes the event identification errors in the previous transnational researches and the endogenous biases of reciprocal causation to explore the impact of capital market liberalization on corporate financialization by making use of the data of A-share listed companies at Shanghai and Shenzhen stock exchanges from 2011 to 2018. The findings show that the implementation of the Shanghai-Hong Kong Stock Connect system can significantly inhibit the corporate financialization, thereby reducing the risk of enterprises“transforming from reality to virtuality”. The mechanism of action is realized through the dual internal and external governance of passive“voting with feet”and active“voting with hands”by foreign investors. The results of the expansion research reveals that the main motivation for the financialization of Chinese enterprises is still market arbitrage; the opening of the capital market has achieved value creation by reducing the corporate financial asset allocation. Therefore, the government should accelerate the pace of capital market liberalization, encourage mature foreign investors to enter the market, and guide institutional investors to achieve true active shareholderism, and promote the return of capital to the real economy.

Key words: Shanghai-Hong Kong Stock Connect, stock market liberalization, corporate financialization, transforming from reality to virtuality, corporate governance