Unleashing Mass Entrepreneurship: Firm-Level Evidence on the Impact of China’s Registered Capital Reform

A major 2014 amendment of China’s Company Law allowed companies to form without significant shareholder equity. Using a confidential taxpayer dataset, we causally identify the reform’s impact on business formation. Firm entry surged by 33%. New firms started with 31.6% lower assets but operated at similar scales as prior firms. While the average profitability of entrants remained the same, smaller en- trants saw increased profitability post-reform, indicating entry by productive but liquidity-constrained entrepreneurs. Optimizing the financing structure, new entrants displayed a 94% decline in equity and large increases in liabilities. Our findings suggest that minimum equity re- requirements, common worldwide, hinder entrepreneurship.