The Effectiveness of Entry Deregulation : Novel Evidence from Removing Minimum Capital Requirements

Minimum paid-in capital requirements impede firm entry. This study is among the first to examine the effectiveness of an entry deregulation reform in China that eliminated such requirements. We exploit city–month variation in reform implementation and employ a large nationwide administrative dataset of firm registrations, finding that the deregulation strongly encourages firm and job creation. The effect is stronger in provinces with relatively weak institutional quality. Moreover, we find that the deregulation exerts a pro-competitive effect by encouraging entry of small and medium-sized firms, private firms, and single-shareholder firms, which diversifies the industrial bases and reduces the industrial concentration of economic activity. Finally, we also show that the deregulation results in a relatively lower new entrant survival rate but increased firm innovation activities, indicating increased market competition and efficiency in the deregulated cities