Going Bankrupt in China
38 Pages Posted: 21 Sep 2018 Last revised: 15 Jun 2019
Date Written: March 4, 2019
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: Suggested Citation