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

efore our sample period. They should not directly affect the current financing and investment
decisions of the firms in our sample.
In Column 3 and 6 of Table 2, we report the estimated results from the instrumental variable
regressions. Other covariates in the first-stage regression are omitted for presentational convenience.
In the first stage, the two instruments are significant and positive determinants of IP rights
enforcement. Larcker and Rusticus (2010) demonstrate that when the instrument is only weakly
correlated with the endogenous variable, IV methods can produce highly biased estimates even
when the variable is only slightly endogenous. This is the so-called weak-instrument problem. In
their survey of the weak-instrument literature, Stock et al. (2002) develop benchmarks for the F-
statistic; when the number of instruments is 1, 2, 3, 5, and 10, the suggested critical F-values are
8.96, 11.59, 12.83, 15.09, and 20.88, respectively. If the first-stage partial F-statistic falls below
these critical values, the instruments are considered to be weak and the validity of inference is
potentially compromised. The reported partial F-test statistics in the first stage confirm that
“Christian Colleges” and “British Settlement” are indeed strong instruments, with an F-statistic of
513.49 (in Column 3) and 2,636.71 (in Column 6).
In the second-stage, we find that the coefficients of IPP1 and IPP2 are larger than that in the
probit model. Although we cannot directly test whether a single instrumental variable is uncorrelated
with the error term in the regression of access to external debt, we can conduct the overidentification
test of whether a set of instrumental variables (IVs) satisfy the exclusion restriction, when the
number of instruments is greater than the number of endogenous regressors (Wooldridge, 2002). The
reported J-statistics from the overidentification test cannot reject the null hypothesis that the two
instruments are not correlated with the error term in Equation (1), thus the two instruments satisfy
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