Capital market internationalization is widely regarded as an important pathway to improving resource allocation efficiency and enhancing governance quality, while simultaneously imposing higher requirements on corporate sustainability and social responsibility. However, its impact on firms’ internal income distribution remains subject to academic debate. This study treats the inclusion of China’s A-shares in the MSCI Emerging Markets Index as a landmark exogenous shock of capital market internationalization. Based on a sample of Chinese A-share listed firms from 2014 to 2022, we manually compile firm-level MSCI inclusion data and construct a multi-period difference-in-differences model for empirical testing. The results indicate that firms’ inclusion in the MSCI Index significantly increases their labor income share. The mechanism analysis reveals that this promoting effect operates mainly through three channels: alleviating financing constraints, fostering innovative development, and strengthening investor governance. Further heterogeneity analysis shows that the effect is more pronounced among technology-intensive firms, firms under greater competitive pressure, and firms with higher degrees of internationalization. By incorporating income distribution outcomes into the framework of capital market internationalization, this paper enriches the evidence on the economic and social effects of internationalization and provides policy implications for emerging economies to advance high-level capital market opening and optimize income distribution.

This paper examines how globalization process shapes the corporate ESG efforts in emerging markets. Using a staggered difference-in-difference model based on the gradual inclusion of China's A-shares in the MSCI index, we find that public companies improved their ESG performance and disclosure quality after being included. The results are robust to propensity score matched sample. Notably, the impact on ESG disclosure was significantly greater than on ESG performance, and the effect is more pronounced for non-SOEs and firms with weak governance. The inclusion also leads to significant increasesin foreign holdings, the proportion of women directors, and analyst attention, which have promoting effects on corporate ESG performance and disclosure ratings. This study sheds light on the macro-level determinants of corporate ESG engagement.

Abstract: Traditional research about the passive investors and index were mainly focus on the tracking error and the performance of mutual funds. However, they ignored that, deceptive by name, the passive investors, such as index-tracking funds and ETFs, may have an active impact on the value of the company through large-scale transactions of these passive investors. Focused on the Chinese stock market, this paper investigates whether specific passive investors, the funds and ETFs that track MSCI China index, will actively influence the market valuation after MSCI Index Rebalance. When the passive shareholders, which are always the mutual funds, exceeds a threshold, I find that firms added to the index will have a significant positive return, about X%, to the index itself. Also, I find the firms eliminated out to the index have a significant negative return, about X%, to the index itself. One potential interpretation of these results is that index-rebalancing will lead the index-trackers to buy those stocks added to the index, and these transactions represent a large buy power that will lead the demanding of those stocks to exceed the selling power and this dynamic of trading plus the following transactions of other investors eventually cause a premium and positive return. The firm size will also have an impact on stock performance when the index get rebalanced, partially in that the weight of the index is calculated according to the market value, a calculate method that leads to the higher weight of large companies. If large companies are added to or removed from the index, the trading volume will be larger, causing more transactions dynamic on those stocks.

After the first index fund launched in 1999, the index fund market has been growing steadily in China. In this paper, we seek to measure and understand the tracking error of China based index funds. The results show that sample index funds exhibit an acceptable level of tracking error in general. Furthermore, by means of decomposition of tracking error variance we find that risk structure of sample funds keeps consistency with financial theory about indexing. While there is an exception such as Hua An MSCI China A share e.g., whole performance of the better run index funds suggests that indexing is practicable under China conditions.

Since the first index fund launched in 1999, the index fund market has been growing steadily in China. In this paper, we seek to measure and understand the tracking error of China based index funds. The results show that sample index funds exhibit an acceptable level of tracking error in general. Furthermore, by means of decomposition of tracking error variance we find that risk structure of sample funds keeps consistency with financial theory about indexing. While there is an exception such as Hua An MSCI China A share e.g., whole performance of the better run index funds suggests that indexing is practicable under China conditions.