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The dark side of capital flexibility: Subscribed capital system reform and creditor interests in China

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  • Chai, Weidi
  • Zhang, Chunyu
  • Cui, Yongmei
  • Ma, Xiaohong

Abstract

In 2024, China's Company Law reinstated stricter paid-in capital rules, reversing the 2013 shift to a subscribed capital system. This study investigates the real economic consequences of the 2013 subscribed capital system on corporate creditors in China. Using a comprehensive panel dataset of A-share-listed firms from 2010 to 2023 and a difference-in-differences (DID) empirical strategy, we find robust evidence that the subscribed capital system significantly weakens creditors' interests. We identify three key channels: weakened creditor protection, deteriorated corporate governance, and distorted capital allocation. The adverse effects are more pronounced in non-state-owned firms, short-term-oriented management, firms with weak banking relationships, and enterprises located in regions with higher government intervention and lower levels of informatization. Furthermore, we provide novel empirical evidence that the subscribed capital system exacerbates over-indebtedness and impairs innovation output, suggesting broader implications for economic dynamism and financial stability.

Suggested Citation

  • Chai, Weidi & Zhang, Chunyu & Cui, Yongmei & Ma, Xiaohong, 2026. "The dark side of capital flexibility: Subscribed capital system reform and creditor interests in China," China Economic Review, Elsevier, vol. 95(C).
    • Handle: RePEc:eee:chieco:v:95:y:2026:i:c:s1043951x25002937
    DOI: 10.1016/j.chieco.2025.102635
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