In the last decade, the Chinese Government enacted two rule-based policy changes related to property rights, namely, a constitutional amendment to protect the lawful rights of the private sector in 2004 and a property rights law in 2007. Using property rights theory, the purpose of this paper is to hypothesize the contingent effect that these property rights changes have on the investment of individual human and financial capital toward entrepreneurship. In addition, this study also explores whether property rights changes have a differential effect on the two forms of entrepreneurship, namely, opportunity and necessity entrepreneurship.
This research uses logit regression analysis on a two-period model using the Global Entrepreneurship Monitor (GEM) database to test these effects.
Contrary to existing evidence from western contexts, this study finds that property rights changes have a significant influence on the investment of both forms of capital toward necessity entrepreneurship in China.
The use of a secondary database like GEM has certain limitations, such as the non-availability of data on a longitudinal basis, and the need to operationalize certain constructs like social and financial capital as non-continuous variables.
There has been limited research on the phenomena of necessity entrepreneurship in economies such as that of China. The findings of this study highlight that property rights protection is equally important for necessity entrepreneurship in institutional contexts like China.