IDEAS home Printed from https://ideas.repec.org/a/eee/reveco/v101y2025ics1059056025003582.html

Establishment of bankruptcy courts and corporate investment decisions

Author

Listed:
  • Liu, Ye
  • Li, Ziping

Abstract

In recent years, with the ongoing enhancement of China's bankruptcy legal system, the establishment of bankruptcy courts (EBC) has emerged as a crucial initiative to optimize the business environment and boost judicial efficiency. Nevertheless, the influence of EBC on corporate investment decisions, particularly regarding their underlying mechanisms and heterogeneous effects, remains insufficiently explored. This study, utilizing data from publicly listed companies spanning from 2010 to 2023, delves into the impact of bankruptcy court establishment on corporate investment decisions and elucidates its underlying mechanisms. The findings reveal that the EBC significantly stimulates corporate investment, with this effect exhibiting marked heterogeneity among firms with different ownership structures and across various regions. Mechanism analysis further suggests that EBC positively affects corporate investment decisions by mitigating financing constraints. Notably, the mediating effect of financing constraints is more prominent in highly competitive firms. Additionally, the debt-to-asset ratio serves as a threshold in this relationship, with the impact of bankruptcy court establishment on corporate investment decisions following a U-shaped trend, initially decreasing and subsequently increasing as the debt-to-asset ratio varies.

Suggested Citation

  • Liu, Ye & Li, Ziping, 2025. "Establishment of bankruptcy courts and corporate investment decisions," International Review of Economics & Finance, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003582
    DOI: 10.1016/j.iref.2025.104195
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1059056025003582
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.iref.2025.104195?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Christian Andres, 2011. "Family ownership, financing constraints and investment decisions," Applied Financial Economics, Taylor & Francis Journals, vol. 21(22), pages 1641-1659.
    2. Wang, Shihao & Wang, Jiamin & Sahil Maqsood, Umer & Wang, Keyun & Li, Qian, 2023. "Creditor protection and trade credit financing: Evidence from a quasi-natural experiment in China," Finance Research Letters, Elsevier, vol. 57(C).
    3. Viet Anh Dang & Ning Gao & Tiancheng Yu, 2023. "Climate Policy Risk and Corporate Financial Decisions: Evidence from the NO x Budget Trading Program," Management Science, INFORMS, vol. 69(12), pages 7517-7539, December.
    4. Basha, Shabeen Afsar & Bennasr, Hamdi & Goaied, Mohamed, 2023. "Financial literacy, financial development, and leverage of small firms," International Review of Financial Analysis, Elsevier, vol. 86(C).
    5. Xiang, Xiaojian & Liu, Chuanjiang & Yang, Mian, 2022. "Who is financing corporate green innovation?," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 321-337.
    6. Wen, Huwei & Zhong, Qiming & Lee, Chien-Chiang, 2022. "Digitalization, competition strategy and corporate innovation: Evidence from Chinese manufacturing listed companies," International Review of Financial Analysis, Elsevier, vol. 82(C).
    7. Tian, Guangning & Li, Bo & Cheng, Yue, 2022. "Does digital transformation matter for corporate risk-taking?," Finance Research Letters, Elsevier, vol. 49(C).
    8. Beladi, Hamid & Deng, Jie & Hu, May, 2021. "Cash flow uncertainty, financial constraints and R&D investment," International Review of Financial Analysis, Elsevier, vol. 76(C).
    9. Zhang, Yue & Wu, Kai, 2023. "Bankruptcy court establishment and corporate risk-taking," Finance Research Letters, Elsevier, vol. 58(PC).
    10. Rehman, Obaid Ur & Zhou, Zihan & Wu, Kai & Li, Wen, 2024. "From courtrooms to corporations: The effect of bankruptcy court establishment on firm acquisitions," Finance Research Letters, Elsevier, vol. 61(C).
    11. Shu, Hao & Tan, Weiqiang & Wei, Ping, 2023. "Carbon policy risk and corporate capital structure decision," International Review of Financial Analysis, Elsevier, vol. 86(C).
    12. Iverson, Benjamin & Madsen, Joshua & Wang, Wei & Xu, Qiping, 2023. "Financial Costs of Judicial Inexperience: Evidence From Corporate Bankruptcies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 58(3), pages 1111-1143, May.
    13. Greta Falavigna & Roberto Ippoliti, 2022. "Financial constraints, investments, and environmental strategies: An empirical analysis of judicial barriers," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2002-2018, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liu, Shuang & Li, Yuchen & Huang, Kang & Zhao, Chunzi & Jin, Guangyi, 2025. "The impact of financial openness on regional economic growth: the mediating role of foreign trade," Finance Research Letters, Elsevier, vol. 86(PD).
    2. Huang, Wanran, 2025. "Establishment of bankruptcy tribunals, financing constraints and corporate investment efficiency," Finance Research Letters, Elsevier, vol. 86(PE).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhou, Yong & Liu, Siting & Song, Wei, 2025. "Bankruptcy court establishment and corporate financial fraud," International Review of Economics & Finance, Elsevier, vol. 100(C).
    2. Liu, Min & He, Jiurui & Liu, Nana, 2025. "Exploration of the relationship between firm growth and R&D investment under monetary policy adjustment," Finance Research Letters, Elsevier, vol. 78(C).
    3. Zhang, Huatao & Bi, Tao & Shen, Yunqiao & Tu, Sophia Zimeng, 2025. "The effects of intellectual property protection on corporate digital transformation," International Review of Economics & Finance, Elsevier, vol. 103(C).
    4. Zheng, Dawei & Wang, Tingdong, 2025. "Supply chain resilience, logistics efficiency, and enterprise competitiveness," Finance Research Letters, Elsevier, vol. 79(C).
    5. Li, Haibo & Xiao, Biyun, 2025. "Strengthening provincial export resilience through the digital economy: Analysis of impacts, global value chain integration, and regional disparities in China," Finance Research Letters, Elsevier, vol. 76(C).
    6. Ren, Yu & Liu, Xiongfei & Zhu, Yi, 2025. "Can the development of digital finance and information transparency improve enterprise investment efficiency?," Finance Research Letters, Elsevier, vol. 73(C).
    7. Li, Yunxian & Li, Fen, 2025. "Digital economy, the income gap, and regional crime rates in China," Finance Research Letters, Elsevier, vol. 75(C).
    8. Liu, Jian & Wang, Chuyun & Zhao, Ziyun, 2025. "The new patent law and enterprise digital technology Innovation: An analysis of regulatory effects based on financing constraints," International Review of Economics & Finance, Elsevier, vol. 102(C).
    9. Cui, Yang & Zhang, Yanliang, 2025. "Financial stability strategies: Bankruptcy courts and corporate capital structure adjustment," International Review of Economics & Finance, Elsevier, vol. 99(C).
    10. Li, Fan, 2025. "Pledge of controlling shareholder's equity, digital transformation, and green innovation," Finance Research Letters, Elsevier, vol. 76(C).
    11. Li, Yuanyuan & Zhang, Yindan & Chen, Chen, 2025. "Enterprise digital transformation, government subsidies, and green innovation performance," Finance Research Letters, Elsevier, vol. 81(C).
    12. Hua, Xiang, 2025. "Social insurance, wage levels, and corporate innovation efficiency," Finance Research Letters, Elsevier, vol. 79(C).
    13. Qiao, Nan & Xu, Bohan, 2025. "Green credit policy, media pressure, and corporate green innovation," International Review of Economics & Finance, Elsevier, vol. 98(C).
    14. Liu, Zegang & Cheng, Wen & He, Mei & Duan, Chaojun & Pan, Xingchen, 2025. "Digital technology innovation, value chain reshaping and digital transformation," Finance Research Letters, Elsevier, vol. 85(PA).
    15. Sun, Yuliang & Han, Mingfeng, 2025. "Does globalized R&D promote corporate innovation?," Finance Research Letters, Elsevier, vol. 81(C).
    16. Liu, Qiong & Xu, Rujun & Tao, Wenli, 2024. "Impact of auditing information technology modernization on corporate technological innovation investment: The roles of risk perception and internal control," Finance Research Letters, Elsevier, vol. 67(PB).
    17. Cheng, Xuemei & Zheng, Yinglong & Tu, Yongqian, 2025. "Research on the dynamic interaction effects of litigation events, financing constraints, and the risk of corporate stock price crashes," International Review of Economics & Finance, Elsevier, vol. 99(C).
    18. Gong, Zhongyi & He, Pei & Sun, Yuyang, 2025. "Social governance, financial regulation, and corporate investment efficiency," Finance Research Letters, Elsevier, vol. 79(C).
    19. Du, Ying & Tong, Jing, 2025. "Loss of pricing power for data factors, financial mismatches, and corporate innovation: Evidence from a quasi-natural experiment," Finance Research Letters, Elsevier, vol. 85(PA).
    20. Xiao, Yu & Wu, Junxian & Tu, Yongqian, 2025. "Intensity of environmental regulation, integration of digital and physical realms, and level of corporate green development," Finance Research Letters, Elsevier, vol. 78(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003582. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620165 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.