Bankruptcy trial reform and corporate labour employment

In recent years, the government of China is pursuing bankruptcy trial reform (BTR) to strengthen the enforcement of its bankruptcy laws. While prior literature has emphasized the role of BTR in creditor protection and corporate investment efficiency, its implications for labour market dynamics remain underexplored. Based on a quasi-natural experiment of staggered establishment of liquidation and bankruptcy trial tribunals in different regions, this study examines the impact of BTR on corporate employment levels. Using a sample of Chinese A-share listed firms from 2012 to 2022 and a multi-period difference-in-differences model, this study found that BTR can significantly expand the scale of labour employment in enterprises in pilot cities. Mechanism analysis shows that BTR expands the scale of bank credit to alleviate the financing constraints of enterprises. It also reduces tax burdens and transaction costs to promote the governance of zombie enterprises, thus expanding the scale of enterprise labour employment. Heterogeneity analysis indicates that institutional reform effects are stronger in state-owned enterprises, labour-intensive firms, regions with lower judicial quality, and areas with higher labour supply. Extended analysis finds that BTR also helps enterprises improve their human capital structure and labour income share.