Does Enforcement of Intellectual Property Rights Matter in China ...

of informal financing ratio (8%) for the sample of Chinese firms in Ayyagari, Demirguc-Kunt, and
Maksimovic (2010). The reason is that our sample firms are younger and have a higher sales growth
than theirs. Annual sales growth of our samples are 134% (mean) and 18.3% (median) during 2002-
2005, while theirs are 13% (mean) during 1999-2001. Firms in our sample, on average, have been
in business for 7.8 years, while theirs are 16 years old. The higher informal financing ratio in the
younger firms is consistent with the suggestion by Allen et al. (2005) that “Financing for private
credit agencies (informal finances), instead of banks, is the most important channel during a firm’s
growth period (year 3-8)” (Page 95).
Third, firm i in year t is coded as having raised new external equity if the net increase of
external equity for firm i in year t exceeds 5% of its total assets at the end of year t. Consistent with
the definition of Baker, Stein and Wurgler (2003), new external equity is equal to the net increase in
book equity minus the net increase in retained earnings. Only 18.4% of firm-year observations have
recorded new external equity. 11
Table 1 (Panel A) also reports the summary statistics for R&D input and R&D output. We
measure R&D input as R&D intensity, defined as R&D expenditures of firm i in year t divided by
the start-of-year book assets. R&D intensity averages at about 7.6% of assets and exhibits wide
variation, with a standard deviation of 13.0%. R&D output for these high tech firms is measured as
the number of innovation patents and the percentage of new product sales to total sales. The number
of innovation patents has mean value of 0.81, with a standard deviation of 22.64. And the mean
value of percentage of new product sales is 21.3%, with a standard deviation of 34.4%. 12
11 Since our sample only includes unlisted companies, the companies mainly raise new equities from existing
shareholders.
12 292 observations are coded as missing, because these high tech firms have no reported sales.
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