Property Rights and Investment Among Chinese Firms: The Importance of Sunk Costs

Although numerous studies have demonstrated an association between property rights and economic performance, we lack a good understanding of the channels mediating this association. This article examines data from a World Bank survey of 12,400 Chinese industrial firms and presents evidence consisten...

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Bibliographic Details
Published in:	The Chinese economy Vol. 48; no. 6; pp. 413 - 429
Main Author:	Minard, Paul
Format:	Journal Article
Language:	English
Published:	Abingdon Routledge 02-11-2015 Taylor & Francis Ltd
Subjects:	Banking China Companies Costs Economic models Economic performance firms Industrial enterprises investment Investment companies Investments Property rights Studies sunk costs China
Online Access:	Get full text
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Summary:	Although numerous studies have demonstrated an association between property rights and economic performance, we lack a good understanding of the channels mediating this association. This article examines data from a World Bank survey of 12,400 Chinese industrial firms and presents evidence consistent with a "sunk cost mechanism" by which property rights affect firm investment levels, new fixed asset investment being more responsive to property rights security among firms with high sunk costs. This finding is robust to two proxies for sunk costs, and is as predicted by an options model of optimal investment.
ISSN:	1097-1475 1558-0954
DOI:	10.1080/10971475.2015.1081806