The 308th Wenlan Financial Forum

Abstract：

The bankruptcy process in many countries is lengthy and cumbersome, which prevents creditors from recovering their claims in distress. Exploiting the staggered introduction of specialized bankruptcy courts appointing professional judges in China, we find that they lead to a 7.6% reduction in the cost of debt financing, with a stronger effect for issuers of higher default risk. To establish the direction of causality, we focus on differences in court enforcement, namely bankruptcy court versus civil court, across otherwise similar bordering counties located within the same province. By analyzing manually collected bankruptcy filings, we uncover the mechanism with reductions in liquidations, shorter bankruptcy proceedings, less government interference, and higher creditor recovery rates. We further exploit the heterogeneous debt enforcement across Chinese prefectures, together with the bankruptcy reform to estimate the elasticity of bond prices to local enforcement. Improvement in court efficiency translates into significant increases in debt capacity, bond maturity, and investment by bond issuers. These results indicate that stronger court enforcement is a necessary precondition in handling the USD 120.2 billion bond defaults.

Speaker Introduction：

Bo Li is currently an Assistant Professor of Finance at Guanghua School of Management, Peking University. She taught at the PBC School of Finance, Tsinghua University for 10 years. Her main research areas are corporate finance, political economy, and economic history. Her latest research focuses on technology adoption and talent allocation in emerging markets (especially China), as well as the interactions between governments, institutions, and companies. Her research covers a wide range of important economic and social issues, such as anti-corruption, bankruptcy law, industrial policy, and venture capital markets. Her research has been published in various top international academic journals, including Journal of Political Economy, Review of Finance, and the Journal of Law, Finance, and Accounting. Her paper "Investing with the Government: A Field Experiment in China" won the 4th Masahiko Aoki Economics Prize for Excellent Papers. Professor Li holds a Ph.D. in Economics from Queen's University, an M.A. in Economics from the University of British Columbia, and a B.A. in Economics from Western University.