Abstract: Deepening the level of capital market liberalization is an important measure for the Chinese government to promote the regula-tory transformation of capital market in recent years. However, it remains unknown whether the opening of the stock market has affected the front-line regulation tendency and realized the original intention of promoting reform through opening up. Therefore, based on the fi-nancial report inquiry letter, this paper discusses the relationship between foreign ownership and the front-line regulation of the exchanges under the background of the continuous opening of the stock market in China. We find that foreign ownership can significantly reduce the probability, rounds and amount of financial report inquiry letters received by firms. The results are still valid after reducing the endoge-nous problems. In addition, the impact of foreign ownership exists mainly in private enterprises, enterprises with higher analysts' atten-tion and less degree of equity concentration. Further analysis shows that firms with foreign ownership are less likely to receive comment letters requiring verification opinions from third-party professional organizations, and the letters received by these firms usually involve fe-wer questions. Correspondingly, these firms have a lower probability of delaying the reply of comment letters and the overall amount of the replying announcements is also less. Finally, we find that the above results are mainly reflected in the firms held by foreign capital through Mainland-Hong Kong Stock Connect programs. The findings show that stock market liberalization indeed affects the front-line reg-ulation behavior of stock exchanges through foreign investors, thus having important implications for further opening of capital market and improving the regulatory system in the future.

Key words: foreign ownership, inquiry letter, stock market liberalization, front-line regulation