Collateral reform and firm value: Empirical evidence from the natural experiment of civil code of the PRC

Abstract

This paper investigates the impact of collateral law reform, marked by the promulgation of the Civil Code, on firm value using a difference-in-differences (DID) approach. The empirical results indicate that the reform of property rights law associated with the Civil Code leads to a short-term decline in firms' market value. Mechanism analysis reveals that the reform reduces firm value by increasing agency costs and tightening financing constraints. Heterogeneity analysis further shows that the negative impact of the collateral reform on firm size value is significantly more pronouneed for private enterprises than for state-owned firms, there is no significant difference in the coefficient values of firm profit value. However, the regional heterogeneity of the reform's effects is not statistically significant, suggesting that the impact on firm value does not vary significantly across different geographic regions.