Going Bankrupt in China

58 Pages Posted: 28 Jul 2020 Last revised: 29 Mar 2022

Multiple version iconThere are 3 versions of this paper

Date Written: July 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 affects 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: Court efficiency, Political influence, Specialized Courts, Zombie firms

JEL Classification: G33, K22, O16

Suggested Citation

Li, Bo and Ponticelli, Jacopo, Going Bankrupt in China (July 2020). CEPR Discussion Paper No. DP15007, Available at SSRN: https://ssrn.com/abstract=3650122

Bo Li (Contact Author)

Tsinghua University - PBC School of Finance ( email )

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

Jacopo Ponticelli

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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