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Bankruptcy court reform and spillover effects on trade credit provision: evidence from China

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  • Zhao, Huixian
  • Liu, Shasha
  • Yi, Lan

Abstract

This paper employs the establishment of specialized bankruptcy courts in China as a quasi-natural experiment to examine its impact on trade credit provision. Results show that the establishment of bankruptcy courts significantly increases trade credit provision by local firms, through alleviating financing constraints and intensifying market competition. Cross-sectional analyses indicate that the effect is more pronounced in regions with weaker legal enforcement and fewer financial institutions, and among firms with greater bankruptcy risk, higher information asymmetry, or lower relationship-specific investments. In addition, bankruptcy courts are particularly effective in promoting trade credit provision among firms with a larger local customer base. Finally, this paper also finds that the establishment of bankruptcy courts leads to increased market competition, which in turn encouraged local firms to expand their customer base beyond local market.

Suggested Citation

  • Zhao, Huixian & Liu, Shasha & Yi, Lan, 2026. "Bankruptcy court reform and spillover effects on trade credit provision: evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:pacfin:v:98:y:2026:i:c:s0927538x26001319
    DOI: 10.1016/j.pacfin.2026.103185
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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
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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