Property Rights, Finance, and Reinvestment: Evidence from China's Private Enterprises

Abstract

The case of China seems to present a counterexample to the literature on economic institutions as its private enterprises have achieved spectacular growth despite poor protection of private properties and difficulties in accessing external finance. In this study, we address this apparent puzzle by investigating the impacts of property rights protection and access to external finance on the reinvestment decision. Using the instrumental variable estimation to address the endogeneity issues, we find that property rights protection is more important for the reinvestment decision than the access to external finance.

Keywords: Property Rights Protection, Access to External Finance, Reinvestment Decision, China Economy

JEL Classification: P14, G34, L25, D23