Expropriation Risk and Investment: Evidence from a Natural Experiment

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2020-08-14
Authors
Bhambhwani, Siddharth
Huang, Allen
Hui, Dong
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This paper investigates the importance of property rights protections for private firm investment. We use China's 2007 Property Law enactment as an exogenous shock that reduced the risk of local governments expropriating private firms' assets. Using a difference-in-differences design, we find that the Law results in an increase in investment for firms in provinces with high pre-Law expropriation risk. This effect is robust to using firms located in contiguous counties and is stronger in cities with larger government deficits. Furthermore, the increases in investment are tied to higher employment and asset growth, which are primarily financed by owners' personal capital.
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China Property Law, Property Rights, Legal Institutions
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