Coordinating bankruptcy reform: Government–court collaboration and firm innovation through financial and human capital channels

Although prior studies emphasize the importance of judicial fairness in market exit, they largely overlook the role of government coordination during the final stages of bankruptcy resolution. Using China’s Government–Court Coordination (GCC) mechanism as a quasi-natural experiment, this paper examines its impact on corporate innovation. The results show that the GCC mechanism improves judicial efficiency during the enforcement stage of bankruptcy proceedings, accelerates the release and reallocation of capital and human resources from bankrupt firms, and consequently increases innovation investment and innovation output among local firms. The effects are more pronounced in regions with a higher prevalence of zombie firms, stronger government efficiency, and greater promotion incentives for local officials, and are primarily concentrated among non-state-owned and high-tech enterprises. By demonstrating how coordinated market exit can reshape innovation incentives, this study challenges the conventional view that administrative involvement necessarily undermines judicial bankruptcy processes and provides policy-relevant insights for emerging economies seeking to improve bankruptcy efficiency and foster innovation-driven growth.