Working Paper: CEPR ID: DP15007
Authors: Jacopo Ponticelli; Li Bo
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: specialized courts; political influence; court efficiency; zombie firms
JEL Codes: G33; G34; K22; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of specialized courts (K40) | duration of bankruptcy cases (K35) |
| specialization (Z00) | efficiency of bankruptcy resolution (G33) |
| specialized courts (K40) | selection of better-trained judges (K16) |
| specialized courts (K40) | judicial independence from local politicians (K16) |
| introduction of specialized courts (K40) | reallocation of employment away from zombie-firm intensive sectors (J69) |
| introduction of specialized courts (K40) | faster firm entry (M13) |
| introduction of specialized courts (K40) | increase in average capital productivity (D24) |
| specialized courts (K40) | reduction of influence of local politicians on judicial decisions (K16) |
| specialized courts (K40) | case duration reduction for state-owned enterprises (L32) |
| specialized courts (K40) | case duration reduction for privately owned firms (G32) |
| specialization (Z00) | increased effect on case duration towards end of local politicians' terms (C41) |