Private Property Rights and Capital Structure: Empirical Evidence from the 2004 Constitutional Amendment in China

The right to private property was first written into the Constitution of the People's Republic of China in March 2004. We take advantage of the 2004 amendment and use a difference-in-differences approach to empirically test the causal impact of private property rights security on capital structure. Employing the Chinese Industrial Enterprises Database from 2000 to 2007 to implement the analysis, we conclude that private property rights security has a negative impact on leverage. We argue that our conclusion is not China-specific, but a general lesson for modern finance theory and is portable to developed countries. (JEL: G, K, O, P)