An Empirical Study on the Relationship between Investor Protection, Government Behavior, and Financial Development
Abstract
:1. Introduction
2. Literature Review
3. Research Hypotheses
4. Data, Method, and Variable Definition
4.1. Data
4.2. Models
4.3. The Definition of Variables
4.3.1. Dependent Variable: The Level of Financial Development
4.3.2. Independent Variables: Investor Protection and Government Behavior
Investor Protection
Government Behavior
4.3.3. Control Variables
5. Empirical Results
5.1. Descriptive Statistics and Correlation Analysis
5.2. Regression Analysis
5.2.1. Investor Protection and Financial Development
5.2.2. Government Behavior and Financial Development
5.2.3. Government Intervention and Financial Development: An Educational Perspective
6. Concluding Remarks
- (1)
- Our empirical evidence shows that investor protection mechanisms at the firm level do matter for the development of financial markets. Therefore, one way to promote financial development may be that China could dedicate to establishing sound and consummate legal and regulatory systems related to firm-level governance and, at the same time, regulation authorities may design firm-level governance-improving related policies. Furthermore, as we evidenced, information disclosure quality plays an important part in local financial development. The rationale uncovered by this line of evidence may be that when investors can access more accurate information at relatively low cost, the level of investor protection, in turn, will be raised, as well as investor confidence in the market, which promotes financial development. One policy implication is that policies intending to elevate information disclosure quality may be desirable, such as increasing the intensity of reward and punishment in information mistakes to improve the degree of information transparency and ensure the accuracy of the information, etc.
- (2)
- As regards the external environment of investor protection, our findings document that the efficiency of economic case clearance has a significantly positive effect on local financial development, which supports the idea that the efficiency of the local judicial systems is one of the key drivers for advancing local financial markets. On the basis of this line of reasoning, China may take action in improving the efficiency of local judicial systems, such as optimizing judicial procedures, establishing a strong and effective incentive mechanism, as well as enhancing the professional level of judicial personnel through training, etc. One may expect that, in this manner, investors’ incentives in participating in local financial markets could be significantly increased, which is no doubt a catalyst of fostering and advancing local financial development and, thus, furthering local economic development.
- (3)
- Regarding the effects of government intervention on local financial development, we evidence that the government’s direct intervention in the micro contractual environment or in private property could generate negative externalities to those firms without government support, which, in turn, spurs investors to devote their resources to the firms with government support. Obviously, by this means, credit resource misallocation is aggravated, which is detrimental to the healthy development of local financial markets. In light of the evidence discussed above, local governments should make an effort to reduce their intervention in contracts and private property, to decrease impediments to the development of the financial market, and to resort more to the market force itself. Although our results indicate that direct intervention in the firm contractual environment by the government negatively influences financial development, our empirical analysis does suggest that increasing governments’ investment in education could have a positive effect on financial development. Even if we do not test whether the levels of other public services have the same effect due to data unavailability in this study, one may expect that public services similar to education, like public services in technical innovation, may have similar effects on financial development. Thus, local governments may consider making progress in input in related public services instead of directly intervening in the process of firm contracting.
Acknowledgments
Author Contributions
Conflicts of Interest
References
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Variables | Number | Average | Median | Standard Deviation | Minimum Value | Maximum Value |
---|---|---|---|---|---|---|
Demand | 80 | 1.293 | 1.105 | 0.563 | 0.575 | 2.585 |
Supply | 80 | 1.971 | 1.640 | 1.101 | 0.834 | 4.745 |
Audit Opinion | 80 | 3.935 | 3.946 | 0.047 | 3.769 | 3.989 |
Connected Transaction | 80 | 0.100 | 0.086 | 0.067 | 0.013 | 0.268 |
Cases | 70 | 0.325 | 0.314 | 0.076 | 0.116 | 0.515 |
GIC | 80 | 0.123 | 0.121 | 0.040 | 0.038 | 0.198 |
GIPP | 80 | 0.534 | 0.327 | 0.491 | 0.007 | 1.878 |
GIE | 80 | 0.202 | 0.200 | 0.108 | 0.030 | 0.901 |
Expenses | 80 | 0.155 | 0.130 | 0.059 | 0.080 | 0.335 |
Trade | 80 | 0.753 | 0.659 | 0.548 | 0.047 | 1.715 |
Variables | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
---|---|---|---|---|---|---|---|---|---|---|
1. Demand | 1 | 0.984 *** | 0.429 *** | −0.660 *** | −0.151 | −0.757 *** | −0.253 ** | −0.344 *** | 0.580 *** | 0.792 *** |
2. Supply | 0.950 *** | 1 | 0.413 *** | −0.652 *** | −0.232 * | −0.789 *** | −0.282 ** | −0.374 *** | 0.673 *** | 0.748 *** |
3. Audit Opinion | 0.377 *** | 0.293 *** | 1 | −0.505 *** | −0.045 | −0.420 *** | 0.266 ** | −0.029 | 0.206 * | 0.314 *** |
4. Connected Transaction | −0.635 *** | −0.544 *** | −0.433 *** | 1 | 0.060 | 0.460 *** | −0.204 * | 0.049 | −0.270 ** | −0.585 *** |
5. Cases | −0.237 ** | −0.283 ** | −0.064 | 0.182 | 1 | 0.397 *** | 0.162 | 0.520 *** | −0.608 *** | 0.074 |
6. GIC | −0.746 *** | −0.753 *** | −0.422 *** | 0.507 *** | 0.466 *** | 1 | 0.474 *** | 0.442 *** | −0.831 *** | −0.525 *** |
7. GIPP | −0.273 ** | −0.331 *** | 0.205 * | −0.269 ** | 0.203 * | 0.394 *** | 1 | 0.269 ** | −0.411 *** | −0.245 ** |
8. GIE | −0.003 | 0.086 | −0.203 * | −0.089 | 0.296 *** | 0.211 * | −0.028 | 1 | −0.528 *** | −0.123 |
9. Expenses | 0.631 *** | 0.738 *** | 0.245 ** | −0.346 *** | −0.550 *** | −0.802 *** | −0.416 *** | −0.248 ** | 1 | 0.227 * |
10. Trade | 0.820 *** | 0.792 *** | 0.215 * | −0.559 *** | −0.125 | −0.571 *** | −0.168 | 0.097 | 0.363 *** | 1 |
Model (1) | Model (2) | Model (3) | ||||
---|---|---|---|---|---|---|
Demand | Supply | Demand | Supply | Demand | Supply | |
Intercept | −4.635 * | 2.490 *** | 0.877 *** | 0.726 *** | 0.232 *** | 0.580 *** |
(−1.86) | −3.04 | −3.28 | −11.52 | −8.38 | −4.15 | |
Audit Opinion | 1.233 * | −0.365 * | ||||
−1.93 | (−1.74) | |||||
Connected Transaction | −1.334 ** | −1.153 *** | ||||
(−2.37) | (−7.05) | |||||
Cases | 0.645 | 0.309 ** | ||||
−1.57 | −2.08 | |||||
GIC | −2.676 ** | −1.379 *** | ||||
(−2.23) | (−4.42) | |||||
GIPP | 0.013 | −0.231 *** | ||||
−0.17 | (−14.32) | |||||
GIE | 0.149 | 1.443 *** | ||||
−1.64 | −11.66 | |||||
Expenses | 3.787 *** | 8.863 *** | 3.037 *** | 6.692 *** | 4.375 *** | 10.044 *** |
−5.92 | −15.59 | −3.46 | −16.23 | −16.38 | −21.94 | |
Trade | 0.638 *** | 0.481 *** | 0.365 *** | 0.604 *** | 0.357 *** | 0.242 *** |
−11.09 | −3.91 | −3.01 | −18.76 | −12.22 | −4.54 | |
Provincial Effects | Yes | Yes | Yes | Yes | Yes | Yes |
Time Effects | Yes | Yes | Yes | Yes | Yes | Yes |
N | 70 | 70 | 80 | 80 | 80 | 80 |
R2 | 0.8365 | 0.5432 | 0.6371 | 0.639 | 0.6656 | 0.7423 |
Wald-χ2 | 565.65 | 487.11 | 95.92 | 905.15 | 491.38 | 756.41 |
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Chu, C.-C.; Tsai, S.-B.; Chen, Y.; Li, X.; Zhai, Y.; Chen, Q.; Jing, Z.; Ju, Z.-Z.; Li, B. An Empirical Study on the Relationship between Investor Protection, Government Behavior, and Financial Development. Sustainability 2017, 9, 2199. https://doi.org/10.3390/su9122199
Chu C-C, Tsai S-B, Chen Y, Li X, Zhai Y, Chen Q, Jing Z, Ju Z-Z, Li B. An Empirical Study on the Relationship between Investor Protection, Government Behavior, and Financial Development. Sustainability. 2017; 9(12):2199. https://doi.org/10.3390/su9122199
Chicago/Turabian StyleChu, Chien-Chi, Sang-Bing Tsai, Yinghui Chen, Xiyang Li, Yuming Zhai, Quan Chen, Zeng Jing, Zeng-Zi Ju, and Bin Li. 2017. "An Empirical Study on the Relationship between Investor Protection, Government Behavior, and Financial Development" Sustainability 9, no. 12: 2199. https://doi.org/10.3390/su9122199