Population Policy, Demographic Change, and Firm Returns: Evidence from China

We take advantage of China's relaxation in January 2014 of its "one-child" family planning policy to study the causal relationship between expected future demographic changes and firms' stock returns. We use an event study method as our identification strategy and employ data from Chinese stock markets to implement the analysis. We find consistent evidence suggesting that expected demographic changes exert statistically and economically significant effects on firms' stock returns. We address four potential threats about the validity of our empirical design and argue that our conclusion is not China-specific, but a generic lesson portable to developed countries.