Going Bankrupt in China
Using new case-level data 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 cases handled by specialized versus traditional civil courts within the same city. Specialized courts hire better-trained judges and cut case duration by 35%. State-owned firms experience larger declines in case duration relative to privately-owned firms, consistent with higher judicial independence. Cities introducing specialized courts experience faster firm entry, larger increase in average capital productivity and reallocation of employment out of "zombie" firms-intensive sectors.
We are thankful to Chinese Supreme People's Court judges for helpful discussions. We received valuable comments from Darrell Duffie, Hanming Fang, Giovanni Favara, Douglas Gale, Paul Gao, Nicola Gennaioli, Vikrant Vig, Xavier Giroud, Edith Hotchkiss, Kose John, Hao Liang, Ron Masulis, Maijun Qian, Andrei Shleifer, Andrea Tesei, Karin Thorburn, Neng Wang, Cong Wang, Wei Wang, Shang-Jin Wei, Wei Xiong, Wanli Zhao, Qifei Zhu, Xiaodong Zhu and seminar participants at NBER China Working Group, Chicago Booth Political Economy of Finance Conference, SFS Cavalcade Asia, ABFER Singapore, NYU, Tsinghua University, the Hanqing Summer Workshop in Finance, CFRC, CICF, CKGSB and the AFA. Tao Chen, Yihan Deng, Xinwen Liu, Junli Ye, Jiaqi Zhang and Mark He provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.