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Does property rights protection affect corporate risk management strategy? Intra- and cross-country evidence

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  • Lin, Chen
  • Lin, Ping
  • Zou, Hong
Abstract
Recent studies in the law and finance literature have shown that property rights protection is central to corporate financing and investment decisions and economic growth at large. We extend this literature by examining the effect of property rights security on corporate risk management decisions — an important element of a firm's business strategy. Using a unique dataset covering over 55,000 Chinese firms and employing both institution- and firm-level measures of property rights security, we find that secure property rights lead to higher corporate demand for property insurance, suggesting that property rights security is an important determinant of corporate risk management decisions. The effect of property rights protection on insurance consumption is also validated by a cross-country analysis that uses data from 93 countries over the period 1995–2008. Our study sheds light on the importance of property rights protection to corporate risk management decisions.

Suggested Citation

  • Lin, Chen & Lin, Ping & Zou, Hong, 2012. "Does property rights protection affect corporate risk management strategy? Intra- and cross-country evidence," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 311-330.
    • Handle: RePEc:eee:corfin:v:18:y:2012:i:2:p:311-330
    DOI: 10.1016/j.jcorpfin.2011.12.006
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    Cited by:

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    4. Chen, Deqiu & Li, Sifei & Xiao, Jason Zezhong & Zou, Hong, 2014. "The effect of government quality on corporate cash holdings," Journal of Corporate Finance, Elsevier, vol. 27(C), pages 384-400.
    5. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies : a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland, Institute for Economies in Transition.
    6. Allen, Franklin & Qian, Jun & Qian, Meijun, 2018. "A Review of China’s Institutions," CEPR Discussion Papers 13269, C.E.P.R. Discussion Papers.
    7. Zhang, Qiong & Shi, Yupeng & He, Angda & Wen, Xueting, 2017. "Property rights security and firm survival: Micro-data evidence from China," China Economic Review, Elsevier, vol. 44(C), pages 296-310.
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    9. Li, Donghui & Liao, Li & Luo, Yuanhang & Zhang, Xueyong, 2014. "Firm headquarters location, ownership structure, and stock return co-movements," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 158-172.
    10. Boulton, Thomas J., 2023. "Property rights and access to equity capital in China," Global Finance Journal, Elsevier, vol. 55(C).
    11. Zhiyong An, 2013. "Private Property Rights, Investment Patterns, and Asset Structure," Economics and Politics, Wiley Blackwell, vol. 25(3), pages 481-495, November.
    12. Ke Mao & Pierre Failler, 2022. "Does Stronger Protection of Intellectual Property Improve Sustainable Development? Evidence from City Data in China," Sustainability, MDPI, vol. 14(21), pages 1-15, November.
    13. Hartwell, Christopher A., 2018. "The impact of institutional volatility on financial volatility in transition economies," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 598-615.
    14. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies: a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland Institute for Emerging Economies (BOFIT).
    15. Howell, Sabrina T., 2020. "Firm type variation in the cost of risk management," Journal of Corporate Finance, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Property rights protection; Banking; Risk management;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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