Going Bankrupt in China
55 Pages Posted: 21 Sep 2018 Last revised: 25 Jun 2021
Date Written: September 28, 2020
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.
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