Investor Protection And The Diversification Of Chinese Private Enterprises

Although many researchers concern about the relationship between institution arrangement in Chinese economy transition and the rapid development of Chinese non-state sectors, little literature has pay enough attention to the effect of institution contexts on the Chinese private enterprises' investment behavior which has significant impact on the transformation of private enterprises from the paradigm of Law and finance.According to the private property protection context which Chinese private enterprises confronts with, based on the paradigm of Law and finance, the thesis attempt to analyze the relationship between investor protection and substitution mechanisms of investor protection in Chinese economy transition and the motivation and consequence to diversify of Chinese private enterprises.To begin with, on the basis of the investigation about the current status of investor protection and property protection for private enterprises in China, the thesis puts up a model to interpret the effect of investor protection on the motivation to diversify of private enterprises. The result shows that, ineffective investor protection will promote private enterprises to diversify, and also has significant effect on the corporate governance structure and organization forms of diversified private firms.Because law and finance emphasizes on substitution mechanism when law can't protect investors from being expropriated, the thesis investigates the relationship between the substitution mechanism of investor protection in Chinese economy transition and the diversification of private enterprises. The thesis puts forward argument that political connection is a very important substitution mechanism of investor protection for the private enterprise in China. Political connection helps private enterprises maintain good relationship with government administration, which will protect private enterprises from being expropriated. Then, the thesis exploits the relationships between political connection and the diversification of Chinese private enterprises, and argues that, they have impact on each other: on the one side, political connection promotes private enterprises to diversify because political connection facilitates private enterprises to gain the resources which are necessary for firms to diversify, however which is controlled by government; on the other side, under the conditions of that local officials are constrained by political champion, the diversification of private enterprises can enlarge firm's scale and enter into industries which government go after, which help private enterprises to set up good relationship with government. The thesis also provides empirical evidence which accord with the above arguments.Finally, the thesis analyzes the effect of diversification of private enterprises on Chinese economy and society transition by case study. Ineffective investor protection and political connection as substitution mechanism promote private enterprises to diversify, at the same time, help some private enterprises develop into family-controlled, politically-connected, diversified groups, which are of intensive political influence. The results of case study show, such diversified private groups exert their influence to lobby.In all, based on the paradigm of law and finance, the thesis studies the effect of investor protection and its substitution mechanism in Chinese economy transition context on the motivation of private enterprises to diversify and its consequence. On the one side, the thesis shows insights into the micro-mechanism that institutional contexts of Chinese economy transition influence the transformation of private enterprises; on the other side, the thesis also provides empirical evidence to test some arguments of law and finance.