CHINA FINANCIAL RESEARCH NETWORK
2010-10-28 第3卷 第4期
Florida State UniversityDepartment of Finance
Maastricht UniversityFinance Group
James S. Ang
Florida State UniversityDepartment of Finance
James Ang Florida State UniversityDepartment of Finance
Financing of and investing in R&D are prone to risks of appropriation by competitors, information asymmetry, and agency problems. Although legal protection of intellectual property (IP) rights at the national level is necessary to encourage investing in R&D, we show that the effective enforcement at the local level is critical. We focus on the impact of provincial level IP rights enforcement on the financing of and investing in R&D, using a unique and rich database of high technology firms. These firms are located in twenty-eight provinces/districts throughout China. The enforcement of IP rights differs at the provincial level, although the firms are under the same set of national and international laws. To identify the causal effect of provincial level IP rights enforcement on firm behavior, we use several approaches to deal with the issues of endogeneity, reverse causality, and simultaneity. Controlling for provincial institutional factors such as economic development, banking system development, legal system performance, and local government corruption, we find that the enforcement of IP rights positively affects firms’ ability to acquire new external debt (including formal and informal financing) and external equity. Firms in provinces with better enforcement of IP rights invest more funding in R&D, generate more innovation patents, and produce more sales from new products. We also find better enforcement of IP rights encourages financing of and investment in R&D in foreign and ethnic joint ventures. The results confirm that enforcement of IP rights matters even in China. Our paper provides firm level evidence that financing of and investing in R&D are the channels that link enforcement of IP rights and economic growth.
Weihua HUANG Maastricht UniversityFinance Group
In this paper we argue that ine? cient bank loans can reduce the value of borrowing ?rms when the expropriation of minority share- holders by controlling shareholders is a major concern. Using data from Chinese ?nancial market, we ?nd that bank loan announcements generate signi?cantly negative abnormal returns to borrowing ?rms. The share devaluation following loan announcements are concentrated in ?rms that are perceived to be more vulnerable to controlling share- holders?expropriation. In addition, we ?nd weak evidence that bank quality mitigates the negative market reactions.
James S. Ang Florida State UniversityDepartment of Finance
We investigate how social capital in both the home and host countries affects foreign direct investment in high tech firms. Difference in the social capital (trustworthiness) among provinces of the host country, China, is shown to matter in foreign companies’ choice of location, ownership type, and investment in R&D. We find that the provinces in China characterized by high levels of social capital attract more foreign investment. We also find that the likelihood of foreign investors establishing joint ventures with local partners increases with the level of social capital prevailing in that area. Foreign high tech firms conduct more R&D investment and hire more R&D personnel in high-social-capital provinces. Moreover, foreign-owned firms located in high-socialcapital areas keep improving their intensity of R&D investments over time. By contrast, in lowsocial- capital areas, foreign high tech firms do not improve and actually diminish their R&D intensity over time. We further show that the social capital in the country of origin (the home country) of a foreign company also affects its investment decisions in China. Cultural difference between the home country and the host country magnifies the foreign company’s weighing of the regional social capital difference in the host country; foreign companies from higher uncertainty avoidance home country prefer to invest in regions with higher social capital in the host country; on the other hand, kinship decreases the need to deal with strangers, and thus reduces the reliance on the provincial social capital.
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