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Bankruptcy courts and capital structures

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  • Dai, Xiang
  • Lv, Jin Roc
  • Yang, Chen

Abstract

Efficient and independent bankruptcy courts play a pivotal role in shaping corporate strategies and fostering economic growth. In this study, we exploit the establishment of specialized bankruptcy courts in China as a quasi-natural experiment to investigate how enhancements in bankruptcy efficiency influence corporate capital structures. An analysis of a dataset of 11,881 observations from China’s A-share listed firms between 2015 and 2023 reveals that the establishment of bankruptcy courts significantly increases corporate leverage. The impact is particularly pronounced among firms with higher asset tangibility, a larger size, and greater state ownership. Additionally, this study identifies a stronger effect of bankruptcy courts on long-term debt than on short-term debt. These results enhance the understanding of the multifaceted effects of bankruptcy court reforms on corporate leverage and are largely consistent with the trade-off theory of capital structure.

Suggested Citation

  • Dai, Xiang & Lv, Jin Roc & Yang, Chen, 2026. "Bankruptcy courts and capital structures," Economic Analysis and Policy, Elsevier, vol. 89(C), pages 57-72.
    • Handle: RePEc:eee:ecanpo:v:89:y:2026:i:c:p:57-72
    DOI: 10.1016/j.eap.2025.11.030
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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