Bankruptcy judicial reform and corporate fraud: Evidence from China

Miao Miao, Yuxuan Yang, Xueyao Li and Wenjian He

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

Abstract: This study explores the effect of bankruptcy judicial reform on corporate fraud by analyzing the “Reform of the Bankruptcy Case Trial Ways” (RBCTW) based on Chinese A-share listed firms from 2010 to 2019. Using a difference-in-differences (DID) model, we find that the RBCTW significantly reduces corporate fraud, particularly for state-owned enterprises (SOEs). Channels analysis shows that RBCTW increases the probability of bankruptcy and deters firms from strengthening internal governance on the debtor side; enhances creditor protection, reduces litigation costs, and increases debt recovery on the creditor side. The effects of the RBCTW on corporate fraud are larger for firms located in regions with better legal environments, larger firms, SOEs, and high-risk-taking firms. Our results are robust to endogeneity concerns, alternative measures, and model specifications. Overall, our findings highlight the role of the judicial system in preventing corporate fraud and stabilizing the financial market in emerging countries.

Keywords: Bankruptcy judicial reform; Corporate fraud; Law and finance (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:s105905602500677x

DOI: 10.1016/j.iref.2025.104514

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