The Power of Business Legislation: Evidence from China’s 1904 Company Law

Yang Cai and Jiong Zhu

Journal of Law and Economics, 2026, vol. 69, issue 4, 933 - 973

Abstract: We study the effect of China’s first company law, the gongsilü of 1904, on the establishment of new companies. The law introduced limited liability in legal terms to make new companies more attractive to domestic investors. We find that the law’s promulgation led to a surge in the number of newly established companies. Our results further indicate that the increased number of companies was accompanied by a higher rate of market capitalization, corporate valuation, and technology adoption. These findings may advance our understanding of the effects of transplanting Western legal institutions into an East Asian economy. Max Weber’s survey of types of law indicated that only modern, rational law, or logically formal rationality, could provide the necessary calculability. Legalism supported the development of capitalism by providing a stable and predictable atmosphere. (Trubek 2017, p. 227)

Date: 2026
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