Thursday, September 18, 2014 | 2:00pm - 3:30pm | Room 335, HSBC Business School Building

Abstract

This paper examines the link between the protection of property rights and investment activity. We explore the new land-title granting scheme implemented by the Shenzhen government as an exogenous shock that increases property rights protection. We find positive market reactions and a significant enhancement in economic performance. We also find that firms with a land title are associated with a 11:9% increase in their market value and a 36:3% increase in investment when compared to firms without land. Firms with better access to land titles (or non-land holders located in Shenzhen) exhibit 0:8% abnormal returns as well as an additional 5:8% in investment. The major benefit of this incremental value comes from impact of the title to decrease the risk of expropriation. In an attempt to identify the channel through which the land title promotes investment, we find the assurance effect predominates over the collateralization effect. This is probably because listed firms in our sample are subject to less severe financial constraints.