Going Bankrupt in China

The politics of foreclosures

Bo Li and Jacopo Ponticelli

Review of Finance, 2022, vol. 26, issue 3, 449-486

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 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 (search for similar items in EconPapers)
JEL-codes: G33 G34 K22 O16 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (18)

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