Working Paper: NBER ID: w27501
Authors: Bo Li; Jacopo Ponticelli
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: bankruptcy; China; judicial efficiency; specialized courts
JEL Codes: G33; K22; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| specialization of judges (K40) | decrease in the duration of bankruptcy cases (K35) |
| specialized courts (K40) | increase in judicial independence from local political influence (K16) |
| specialized courts (K40) | faster increase in the number of local firms (L26) |
| specialized courts (K40) | increase in capital productivity (E22) |
| introduction of specialized bankruptcy courts (K35) | decrease in the duration of bankruptcy cases (K35) |
| specialized courts (K40) | relative decline in employment in zombie-firm-intensive sectors (J63) |
| specialized courts (K40) | decrease in case duration for state-owned enterprises (L32) |
| specialized courts (K40) | decrease in case duration for privately owned firms (G32) |