The voluminous strategy research on the determinants of corporate scope is often premised on a well-established property rights regime, which contrasts with the weak property rights protection that still characterizes most countries today. We address this gap by applying property rights theory to theorize and empirically examine how the strengthening of the property rights regime affects corporate scope. Our analysis exploits the enactment of a property law that enhanced the formal protection of private properties in China as a quasi-experiment. We show that with a strengthened property rights regime, the horizontal relatedness among private firms’ businesses increases, but their vertical relatedness decreases, compared with state-owned firms. Further, these effects are less prominent for politically connected firms that are afforded informal protection of property rights. Our findings shed new light on the property rights regime as a critical determinant of firms’ horizontal and vertical scope.

This paper uses the enactment of China’s 2007 Property Law (the Law), which reduces the risk of expropriation by local governments, as the setting to investigate the importance of property rights protection for private firm investment. Using propensity score matching and a difference-in-differences design, we find that firms facing weaker property rights protection prior to the Law significantly increase their investment and investment efficiency after the Law. Cross-sectional analyses document evidence consistent with a decrease in firms’ perceived expropriation risk as the main mechanism underlying the Law’s effect. Finally, we show that the Law improves local economic outcomes and employment.

Using a unique list of 528 fake state-owned enterprises (SOEs) exposed in China, we examine whether and how investors react to the government’s property rights protection actions. Our results show that real SOEs with more subsidiaries, pyramid layers, and popularity are more likely to be targeted by wrongdoers. We find that when fake SOEs were exposed, it caused a significant increase in the stock prices of listed central SOEs controlled by the State Council. Further analysis shows that the stock price rise is driven by both the cash flow and risk effects. We also find that the value impact of the crackdown is more pronounced for listed central SOEs with less media coverage, located in weaker legal protection regions, and facing more competition. Overall, our findings provide empirical support for the effectiveness of exposure, as a non-litigation channel of property rights protection, in enhancing firm value.

Despite the importance of property rights protection, evidence of their impact on thebirth, survival, and operations of the whole universe of firms, and the broad impact on the economy, is limited. In this paper we address this important question by utilizing unique administrative firm-level datasets in China. Using a difference-in-differences design, we find that the China’s 2007 Property Law led to significant more new private firms, firms that eventually survive, firms with less shareholders, and more new exporters, whereas the impact is the opposite for state-owned enterprises (SOEs). Moreover, we find that the switch in resources between private firms and SOEs contributes to higher economic growth without sacrificing environmental quality.

Firm diversifications are prevalent in many emerging economies in contrast to the practices in developed economies. A fundamental difference between these two types of economies is the existence of sound economic institutions including in particular property rights protection. Indeed it has been argued that diversified firms may thrive in situations of poor economic institutions, but much research is needed to substantiate this idea. In this paper, using a survey data set of private enterprises in China, we examine whether cross-region variations in the degree of property rights protection a¤ect the extent of firm diversification. We find that poorer property rights protection causes firms to be more diversified. We then explore several possible mechanisms through which property rights protection may affect firm diversification.

Firm diversifications are prevalent in many emerging economies in contrast to the practices in developed economies. A fundamental difference between these two types of economies is the existence of sound economic institutions including in particular property rights protection. Indeed it has been argued that diversified firms may thrive in situations of poor economic institutions, but much research is needed to substantiate this idea. In this paper, using a survey data set of private enterprises in China, we examine whether cross-region variations in the degree of property rights protection a¤ect the extent of firm diversification. We find that poorer property rights protection causes firms to be more diversi?ed. We then explore several possible mechanisms through which property rights protection may affect firm diversification.