Property rights security and firm survival: Micro-data evidence from China

Abstract

The security of property rights has been found to play important roles in various aspects of firm behaviors. However, its effects on firm survival have been largely neglected in previous research. Using annual data of Chinese manufacturing firms over the period 1998–2008, we analyze the link between property rights security and firms' survival probabilities, differentiating firms into stated-owned enterprises (SOEs) and non-SOEs, and considering whether the linkage evolves over time. Examining a wide range of specifications, we find that the protection of property rights, by limiting government intervention and promulgating laws and rules, is crucial for firm survival. Moreover, better security of property rights benefits non-SOEs more. We also find that the beneficial effects of secure property rights on firm survival are more pronounced for years after 2003 when China speeded up deregulation to comply with its WTO commitments and reform target to establish a modern system of property rights than for years before 2002.