Going Bankrupt in China

55 Pages Posted: 21 Sep 2018 Last revised: 25 Jun 2021

Multiple version iconThere are 3 versions of this paper

Date Written: September 28, 2020

Abstract

Using a new case-level dataset we document a set of stylized facts on bankruptcy in China and study how the staggered introduction of specialized courts across Chinese cities affected insolvency resolution and the local economy. For identification, we compare bankruptcy cases handled by specialized versus traditional civil courts within the same city and filed in the same year. We find that specialized courts decrease case duration by 36\% relative to traditional civil courts. We provide evidence consistent with court specialization increasing efficiency via selection of better trained judges and higher judicial independence from local politicians. We document that cities introducing specialized courts experience a relative reallocation of employment out of zombie firms-intensive sectors, as well as faster firm entry and a larger increase in average capital productivity.

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

JEL Classification: G33, G34, K22, O16.

Suggested Citation

Li, Bo and Ponticelli, Jacopo, Going Bankrupt in China (September 28, 2020). PBCSF-NIFR Research Paper, 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://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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