Property rights protection, financing, and firm exports: the impact of China’s property law enactment

Abstract

Chinese property law plays a significant role in the reforms of the Chinese economic system by establishing protective legal frameworks. This study utilizes the enactment of the Property Law in 2007 as a quasi-natural experiment and employs the difference-in-differences method to investigate the law’s impact on firm exports in China. The results indicate that firms’ exports experienced a significant increase after the law’s enactment. These findings remain robust after controlling for additional fixed effects, alternative subsamples, and measures of core variables. The law affects firm exports through two mechanisms: informal financial channels, such as trade credit with trading partners, and formal financial channels, such as borrowings from banks and other financial institutions. Heterogeneity analyses suggest that the export effect is positively related to firms that rely heavily on external financing and are not politically connected. Moreover, this correlation is accentuated in regions characterized by more conservative credit development and heightened efficiency in law enforcement. In addition, the promotional effect is more pronounced in firms exporting to high-income countries. These findings suggest that property rights protection in China significantly impacts trade and provides a comparative advantage to firms’ exports.