E2024007                                                          2024-10-07

Zijun Cheng   Jiayin Hu  Beichen Huang

Abstract
Short debt maturity is commonly viewed as an enforcement device when debt financing involves multiple creditors. We show that a more efficient bankruptcy system crowds out such needs and promotes long-term financing. By exploiting the staggered rollout of bankruptcy reforms, we find larger increases in bankruptcy cases and decreases in case duration when a city establishes its first bankruptcy tribunal. Furthermore, financially distressed firms file for bankruptcy earlier and preserve more assets for distribution. This shift in insolvency resolution primarily benefits creditors with longer maturities, thereby improving firms’ access to long-term financing and increasing investment and employment.

Keywords: Corporate bankruptcy, debt maturity, judicial efficiency, bankruptcy tribunals, long-term creditors

JEL classification: G32, G33, G21, K22, K40

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