Primary Submission Category: Difference in Differences, Synthetic Control, Methods for Panel and Longitudinal Data
Resource Onshore, Restriction Offshore: A Causal Decomposition of the AH Premium via Heckman-HCW
Authors: Yujue Wang,
Presenting Author: Yujue Wang*
Despite the deepening of financial integration via the Stock Connect program in China’s stock market, the persistent AH Premium continues to challenge the Law of One Price. This paper proposes a political wedge mechanism, arguing that conflicting institutional beliefs price state ownership as a “resource” (implicit guarantee) onshore but a “restriction” (agency cost) offshore. Integrating the Heckman correction with the HCW panel method (Hsiao, Ching, & Wan 2012), I construct a counterfactual benchmark to isolate causal effects from firm-quality selection bias. Empirical results reveal a dual-layer mechanism. First, state ownership drives a policy-led selection, significantly increasing the propensity to dual-list ($beta=0.149$). Second, while negative selection on unobservables ($text{IMR}, beta=-0.84$) explains part of the discount, the average treatment effect on valuation remains robustly positive. This persistence underscores the stubbornness of political beliefs: even as market barriers diminish, offshore investors structurally price a “sovereign discount” that defies simple arbitrage. This ingrained belief is only partially mitigated by high-transparency proxies, specifically HK-Macau-Taiwan backgrounds ($beta=-0.56$) and firm size ($beta=-0.64$). Ultimately, these findings demonstrate that valuation divergence is not merely a transient friction, but a resilient reflection of institutional incompatibility that capital channel liberalization alone cannot eliminate.