Judicial specialization and SME capital efficiency: The role of financial courts reform

This study examines the impact of the establishment of financial courts in China on the capital return rate of small and medium-sized enterprises (SMEs), focusing on the underlying mechanisms driving this effect. The findings reveal that financial courts significantly enhance SMEs' capital return rate by approximately 21.2%, primarily through two channels: first, by optimizing credit resource allocation, reducing the crowding-out effect of Local Government Financing Vehicles (LGFVs) on SMEs' credit, and second, by improving the business environment, reducing transaction costs, and increasing market confidence through more efficient financial dispute resolution. The heterogeneity analysis demonstrates that non-state-owned, low-collateral, and capital-intensive SMEs experience more substantial improvements in capital returns following the introduction of financial courts. This paper provides empirical evidence supporting China's financial judicial reform and offers critical insights for the optimization of global financial systems, highlighting the vital role of judicial specialization in enhancing the financing environment and capital efficiency for SMEs.