Property Rights Protection and Allocation of Investment: Evidence from China's Private Firms

49 Pages Posted: 13 Aug 2008 Last revised: 30 Oct 2009

See all articles by Julan Du

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics

Yi Lu

School of Business, University of Hong Kong

Zhigang Tao

The University of Hong Kong - School of Business

Date Written: August 1, 2009

Abstract

Property rights protection has been found to promote economic growth at the macro level, and affect the incentive for investment at the micro level. What is not clear is whether and how property rights protection affects a firm's allocation of investment across industries for a given size of investment. In this paper, using a survey data set of private enterprises in China, we find that weaker property rights protection causes firms to invest in a wider range of industries. We then explore several possible channels through which property rights protection may affect the allocation of investment across industries.

Keywords: Allocation of Investment across Industries, Firm Diversification, Property Rights Protection, Political Capital, External Finance

JEL Classification: P14, G34, L25, D23

Suggested Citation

Du, Julan and Lu, Yi and Tao, Zhigang, Property Rights Protection and Allocation of Investment: Evidence from China's Private Firms (August 1, 2009). Available at SSRN: https://ssrn.com/abstract=1222842 or http://dx.doi.org/10.2139/ssrn.1222842

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Yi Lu (Contact Author)

School of Business, University of Hong Kong ( email )

Rm 730, Meng Wah Complex
Pokfulam Road
Hong Kong
Hong Kong
(852) 2241-5245 (Phone)
(852) 2858-5614 (Fax)

HOME PAGE: http://www.fbe.hku.hk/~luyi

Zhigang Tao

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China
(852) 2857-8223 (Phone)
(852) 2858-5614 (Fax)

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