Does capital market liberalization increase corporate labor income share? Evidence from China

Labor income share is crucial for maintaining social stability and promoting sustainable economic development, capturing the attention of both academics and policymakers. Existing studies focus on the impact of industry transformation and corporate operation on labor income share. Utilizing a quasi-natural experiment based on the implementation of the Shanghai–Hong Kong and Shenzhen–Hong Kong Stock Connect policies, this study identifies the causal effect of capital market liberalization on corporate labor income share in China. The results show that capital market liberalization enhances labor income share by optimizing human capital, improving corporate governance, and promoting market competition. The findings provide essential implications for advancing income distribution and optimizing the structure of China's capital market.