Document Type
Working Paper
Publication Date
2026
Subjects
China, Entrepreneurship, Capital Reform
Abstract
A 2013 amendment of China’s Company Law allowed limited liability companies to form without any minimum equity requirement. Using a confidential taxpayer dataset, we causally identify the reform’s impact on the composition of new firms and their financing choices. Firmentry surged by 33%. Newfirms started with 31.6% lower assets but operated at similar scales as prior firms. While entrants’ average profitability remained the same, smaller entrants saw increased profitability post-reform, indicating entry by productive butwealth-constrained entrepreneurs. Consistent with a preference for debt over equity, new entrants displayed a 94% decline in equity and large increases in liabilities. This indicates that minimum equity requirements force startups to borrow less than they otherwise would. We also find circumstantial evidence that firms use registered capital to signal borrowing intent, even when not backing it up with actual contributions. Overall, the evidence suggests that minimum equity requirements, still common worldwide, hinder entrepreneurship and generate significant financing distortions.
Citation Details
W. Cui & M. Wei, "Unleashing Mass Entrepreneurship: Firm-Level Evidence on the Impact of China’s Registered Capital Reform" (forthcoming in Journal of Law and Economics).