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Do property rights matter? Evidence from a property law enactment

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  • Berkowitz, Daniel
  • Lin, Chen
  • Ma, Yue

Abstract

This paper considers a property law enactment that gave creditors more rights over the assets underlying their secured loans to private firms and gave private firms more protections against the potential expropriation of their assets. We find that this property law enactment led to a significant increase in firm value. We also find that the law׳s impact on value was more profound for firms with more tangible assets, lower internal cash flows, and stronger growth opportunities, and less profound for politically connected firms. Taken together, our findings confirm the importance of property rights protection in enhancing firm value.

Suggested Citation

  • Berkowitz, Daniel & Lin, Chen & Ma, Yue, 2015. "Do property rights matter? Evidence from a property law enactment," Journal of Financial Economics, Elsevier, vol. 116(3), pages 583-593.
    • Handle: RePEc:eee:jfinec:v:116:y:2015:i:3:p:583-593
    DOI: 10.1016/j.jfineco.2015.04.003
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    More about this item

    Keywords

    Property rights; Creditor rights; Expropriation risk; Asset tangibility; Political connections;
    All these keywords.

    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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