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

system. The variation of this index is substantial: it ranges from 0.85 to 11.07 with a standard
deviation of 1.81. The second index is the provincial government’s control of corrupt practices
(denoted as “Corruption Control” thereafter) in the previous year. It has two components: the extent
the local government intervenes in businesses, measured as the time spent by businesses in dealing
with bureaucracy, and the non-tax expenses levied on enterprises, including informal charges, any
forms of apportionment, and illegal fines from the local government, as a percentage of sales.
“Corruption Control” varies from 1.765 to 12.350, with a standard deviation of 2.07. A higher value
of “Corruption Control” corresponds to a lower level of corruption.
In addition, the presence of large urban centers or well-functioning local universities might
affect the availability of external financing and R&D investments for high tech firms. To capture
these effects, we use two control variables: first, the dummy “Metropolis” is one if there is at least a
city in the province with over two million inhabitants; second, the variable “University” is the
number of universities in the province.
We link the above provincial characteristics with the corresponding firm-level data, via the
provincial locations of the firms. There are 27 provinces and four special districts (Beijing, Tianjin,
Shanghai and Chongqing) in China. However, three relatively under-developed western provinces
(Ningxia, Qinghai and Tibet) do not have National Innovative and High Technology Industrial
Development zones, so these provinces do not have high tech companies in our sample. Thus, the
total number of provinces/districts in our analysis is 28. Panel B of Table 1 reports the correlation
coefficients between IP rights enforcement and provincial-level variables.
4. Empirical Analysis and Results
We report our empirical analyses and results in three subsections. We examine the impact of IP
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