Going Bankrupt in China

38 Pages Posted: 21 Sep 2018 Last revised: 15 Jun 2019

Date Written: March 4, 2019

Abstract

In many developing countries courts are inefficient and plagued by political influence. We exploit the staggered introduction of courts specialized in bankruptcy across Chinese cities as a shock to political influence on judicial decisions. Specialized courts are run by more experienced and better trained judges that are less likely to be under the influence of local politicians. Using a new case-level dataset on bankruptcy filings we find that the introduction of specialized courts leads to higher liquidation of state-owned firms controlled by local (but not central) government, lower share of zombie firms, and higher capital productivity of local firms.

Keywords: Political influence; Financial distress; Specialized Courts; Zombie firms; Court efficiency.

JEL Classification: G33, G34, K22

Suggested Citation

Li, Bo and Ponticelli, Jacopo, Going Bankrupt in China (March 4, 2019). Available at SSRN: https://ssrn.com/abstract=3251570 or http://dx.doi.org/10.2139/ssrn.3251570

Bo Li

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China
+86 10-627982146 (Phone)

Jacopo Ponticelli (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Dr
Evanston, IL 60208
United States

HOME PAGE: http://https://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

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