The impact of inclusion in the MSCI EM index on firms' investment efficiency:Evidence from China

This paper investigates the impact of A-share inclusion in the MSCI index on corporate investment efficiency. Using the inclusion of A-shares in the MSCI index on June 1, 2018 as a quasi-natural experiment, the results of the PSM-DID model show that the inclusion of A-shares in the MSCI index significantly reduces corporate investment efficiency. Further analysis reveals that inefficient investment mainly occurs in over-invested firms, non-state-owned firms, and firms audited by Big 4 accounting firms. Firms with low managerial ownership and high degree of surplus management are more likely to overinvest after A-share inclusion in the MSCI index, which leads to a decrease in investment efficiency. Firms with high analyst attention and low equity checks and balances increase their investment after A-share inclusion in the MSCI index, and the influences of decision-making power and control can be the triggers to reduce investment efficiency.