Can bankruptcy court establishment drive enterprise' entrepreneurial orientation?

Yong Zhou, Siting Liu and Wei Song

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: This study examines how the establishment of bankruptcy courts—a notable institutional innovation—encourages entrepreneurial orientation by formalizing risk-mitigation methods and altering resource allocation dynamics. The ''twin mechanism'' is fundamental to this process, comprising two interconnected channels: productivity development through the swift reallocation of unused assets and governance strengthening through increased creditor scrutiny and managerial accountability. These mechanisms collaborate to promote entrepreneurial outcomes: productivity enhancements liberate resources for innovation-centric initiatives, while enhanced governance mitigates imprudent risk-taking and aligns stakeholder incentives, establishing a framework where calculated risks are regarded as strategic rather than existential. The effect is especially significant in non-state-owned enterprises, which utilize legal certainty to manage market uncertainty, and in areas with robust legal frameworks, where bankruptcy proceedings correspond with contract enforcement to enhance their effect. This research integrates institutional economics and corporate finance to provide a framework for policymakers to utilize legal reforms as strategic instruments, thereby transforming bankruptcy systems into accelerators for dynamic entrepreneurial ecosystems.

Keywords: Bankruptcy court establishment; Entrepreneurial orientation; Productivity capability; Governance ability (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025007038

DOI: 10.1016/j.iref.2025.104540

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