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

To test our hypotheses, we utilize several unique data sets that have not been examined in
previous empirical studies. The database compiled by the Ministry of Science and Technology of
China (MOST) provides firm-level financials and R&D related information for a large number of
Chinese high tech companies. These firms are unlisted companies. We choose to focus on these
firms for the following reasons. First, the success of high tech firms critically depends on the output
from R&D and the legal protection of their exclusive rights. Second, listed firms in China are not
required to disclose detailed information on their R&D activity, while our database of unlisted firms
provides richer details, from R&D expenditure to R&D personnel composition. Third, since unlisted
firms are unable to raise funds from the stock market, the financing of their R&D activity is of
particular interests.
The enforcement of intellectual property rights is many faceted. We introduce two measures of
IP rights enforcement. The first is the fraction of intellectual property infringement cases won by the
plaintiffs in each province, thereafter labeled as “IPP1”. It directly measures the probability of
winning by the plaintiffs in IP infringement cases, and thus a good proxy for the enforcement of IP
rights in the courts. The second is the number of articles that advocate IP protection in the official
newspaper published by provincial Communist Party, thereafter labeled as “IPP2”. This variable
conveys the IP enforcement policy from top provincial officials to all levels of local administrative,
judicial, and law enforcement agencies, since these local officials are invariably Party members.
The first measure of IP rights enforcement examines how well a province enforces laws and
regulations on intellectual properties via its court system. The court is an integral part of the IP
rights enforcement, where it can order the defendant to cease infringement, compensate the plaintiff,
or destroy the confiscated products. We collect the outcomes of IP infringement cases brought
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