Does Capital Market Liberalization Drive Digital Transformation? Evidence from Chinese A-Shares’ Inclusion in the MSCI Emerging Markets Index

Abstract

This study examines whether capital market liberalization drives corporate digital transformation by exploiting Chinese A-share firms’ phased inclusion in the MSCI Emerging Markets Index starting in June 2018. Using a difference-in-differences design with propensity score matching, we analyze 35,264 firm-year observations from 2010 to 2022, measuring digital transformation through natural language processing of annual reports across six technology domains: artificial intelligence, big data, cloud computing, the Internet of Things, blockchain, and enterprise digitization. In our preferred specification, MSCI inclusion increases digital transformation intensity by 0.394 log points, equivalent to approximately exp (0.394) − 1 ≈ 48%. Event-study evidence supports treatment timing and parallel trends, placebo tests reject spurious correlation, and alternative outcome specifications confirm robustness. The impact is most pronounced among firms in technology-intensive industries and those located in economically developed provinces. These results provide evidence that capital market liberalization can act as a catalyst for corporate digital transformation in emerging economies.