Going Bankrupt in China

In China, where local courts traditionally suffer from the interference of local governments when dealing with bankruptcy cases, the lack of an efficient and independent judicial system is an obstacle to economic and financial development. Local politicians have strong incentives to delay liquidation and keep low-productivity and financially distressed state-owned firms in operation to maintain employment, avoid social unrest, and promote their political careers. In the last decade, however, in an attempt to increase the legal protection of creditors, China introduced specialized bankruptcy courts in different prefecture-level cities. Compared to traditional civil courts, specialized courts might be run by better-trained judges and are part of an effort by the central government to limit local governments' interventions in bankruptcy cases. Join us for a conversation with Jacopo Ponticelli and Yueran Ma on the new research that investigates China's traditional and new treatments of corporate insolvency, and how the results have important policy implications.