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Speed for Safety: The Establishment of Bankruptcy Courts and Bank Credit Risk in China

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  • Yue Zhang

Abstract

We investigate the effect of bankruptcy court establishment on the credit risk of municipal commercial banks in China from 2013 to 2020. Establishing bankruptcy courts reduces the non-performing loan ratio of municipal commercial banks. The effect is more pronounced in cities with low fiscal transparency and market fragmentation, and a strong rule of law. Furthermore, we argue that the bank’s loan provision and provision coverage ratio is the crucial intermediate variable in the relationship between bankruptcy court establishment and credit risk management. Our findings demonstrate the critical role of judicial system reform in promoting financial stability in China.  JEL classification numbers: G21, G32, G33.

Suggested Citation

  • Yue Zhang, 2023. "Speed for Safety: The Establishment of Bankruptcy Courts and Bank Credit Risk in China," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(6), pages 1-2.
    • Handle: RePEc:spt:apfiba:v:13:y:2023:i:6:f:13_6_2
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    References listed on IDEAS

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    6. Lucia Alessi & Brunella Bruno & Elena Carletti & Katja Neugebauer & Isabella Wolfskeil, 2021. "Cover your assets: non-performing loans and coverage ratios in Europe [Bias-corrected matching estimators for average treatment effects]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(108), pages 685-733.
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    Cited by:

    1. 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).

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    More about this item

    Keywords

    Bankruptcy court; Credit risk; Judicial reform.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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

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