Abstract:

Utilizing the exogenous shock of the implementation of the "Northbound Bond Connect" policy in China's bond market, this paper investigates the income distribution effects of bond market liberalization, providing both theoretical analysis and empirical tests. The study finds that the implementation of the "Northbound Bond Connect" policy significantly increases the labor income share of the affected firms. Mechanistic analysis indicates that the policy positively affects the labor income share through two channels: alleviating corporate financing constraints and promoting corporate innovation activities. Furthermore, the significant impact of the "Northbound Bond Connect" policy on labor income share exists only in firms with weaker external governance and higher labor adjustment costs.

Key words: bond market liberalization, Northbound Bond Connect, labor income share