The Aftermath of Corporate Default with Chinese Characteristics
43 Pages Posted: 19 Apr 2017 Last revised: 12 Nov 2020
Date Written: November 11, 2020
We study the consequences of corporate default using China’s national credit registry. Borrowing after default declines if the lender or borrower is not state-controlled or if the borrower is located in a highly developed province. After default, a key social indicator, employment, does not increase except for state-controlled firms. A new bankruptcy law that increases creditor rights but reduces protection for employees is associated with lower post-default borrowing and employment. In contrast, state-controlled firms borrow more post-default under a government initiative intended to reduce bureaucratic interference in the economy. Our evidence highlights trade-offs between political, commercial, and social goals faced by bankers and policymakers.
Keywords: bank loans, corporate default, default resolution, China, state-owned enterprises, government controlled banks
JEL Classification: G21, G28, G33, G38
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