How does the stock market react to financial innovation regulations?

This study examines the market reactions of Chinese stock markets to 28 announcements of financial innovation regulations in the period of 2008–2015. Using a well-established event study methodology, we observe average positive market reactions to regulations, thus implying positive impacts of regulations on firm operations. We refer to such an impact as an ‘innovation effect’. Such an effect inversely relates to managerial characteristics (managerial financial connections and political connections). Managerial characteristics have worse influences on market reactions for Non-State-Owned Enterprises (Non-SOEs) than for SOEs. Our results are robust to diverse fixed-effects and potential endogeneity issues.