Bankruptcy judicial reform and corporate trade credit financing

Yixin Chen and Tingting Liu

China Economic Review, 2024, vol. 85, issue C

Abstract: In this paper, we rely on an exogenous shock to examine the impact of bankruptcy judicial reform on firms' trade credit financing. We employ a staggered difference-in-differences design based on the introduction of bankruptcy courts in China and find that the implementation of bankruptcy judicial reform significantly reduces firms' trade credit financing. Mechanism tests reveal that improved judicial efficiency increases the risk perception of local firms, which discourages trade credit financing. Heterogeneity tests show that the above effect is more pronounced in firms with higher bankruptcy risks, firms with state ownership, and in regions where bankruptcy administrators have been established. Conversely, higher supplier concentration attenuates the inhibitory effect of bankruptcy judicial reform. Further analyses show that the reform mainly reduces firms' trade credit provided by customers and the trade credit with financial attributes. In addition, the reform lowers the sales of firms' suppliers but does not affect their earnings performance, while customers benefit from the reform as their earnings increase while sales do not change significantly. The findings of this paper shed light on the impact of bankruptcy judicial efficiency on corporate financing structure, and provide policy implications for promoting the construction of China's bankruptcy rule of law and preventing financial risks.

Keywords: Judicial reform; Bankruptcy court; Trade credit; Supply chain; China (search for similar items in EconPapers)
JEL-codes: G32 G33 K42 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1043951X24000658
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:85:y:2024:i:c:s1043951x24000658

DOI: 10.1016/j.chieco.2024.102176

Access Statistics for this article

China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

More articles in China Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().