The Impact of China's Labor Contract Law on Firm Performance: Empirical Evidence from Taiwanese Investment in China

Abstract

This study extends research on issues relating to China’s Labor Contract Law to clarify the relationship between the introduction of the legislation and Taiwanese investments in China, interacting with any industry effect. It also examines how Taiwanese firms’ degree of dependence on China is associated with their performance. Models, based mainly on eclectic theory and institutional theory, are employed to test hypotheses using panel data from 1,015 Taiwanese investments in China over twentyfive quarters. The findings reveal that the adoption ofChina’s Labor Contract Law and Taiwanese firms’ dependence on China are not always associated with firm performance, and industry factors can, under some circumstances, moderate the impact of the Law on firm performance. The findings provide business practitioners with evidence as to whether a new law (in this case, the Labor Contract Lawof China) can have an impact on a firm and how much the industry effect matters.