Does legal protection affect firm value? Evidence from China's stock market

摘要

We examine the question of whether firms derive value in areas with higher legal protection by studying how the difference among regional legal protection levels affects capital market reactions to firms receiving administrative penalty in China. The results show that the level of legal protection has a positive effect on the market reaction to administrative penalty announcements, and the effect is attenuated by non-state ownership. Furthermore, we find evidence of higher efficiency of law enforcement in regions with higher level of legal protection.