Date: 14 Dec 2023 (Thu)
Capital Marketing Development: China and Asia
The Value of Bankruptcy Enforcement in Financial Distress: Evidence from the Chinese Bond Market
18 January 2024, Thursday
10:00 am – 11:10 am, Thursday (Singapore Time, UTC+8)
[The Value of Bankruptcy Enforcement in Financial Distress: Evidence from the Chinese Bond Market]
The bankruptcy process in many countries is lengthy and cumbersome, which prevents creditors from getting repaid efficiently in distress. Exploiting the staggered introduction of specialized bankruptcy courts in China, the authors find that they lead to sizable reductions in the cost of debt financing. In particular, bond spread represents a decrease by 7.6%, with a stronger effect on privately owned enterprises and issuers of higher default risk. By analyzing manually collected bankruptcy filings, the authors find court enforcement explains 43.7% of the variation in bond spreads. Exploration on the default resolution shows that the potential mechanisms are reduction in liquidations, shorter bankruptcy proceedings, less government interference, and higher creditor recovery rate. Better creditor protection translates into significant increases in debt capacity, bond maturity and investment by bond issuers. These results indicate that stronger court enforcement is a necessary precondition for firms to benefit from judicial reforms in handling the USD 120.2 billion bond defaults.
Bo LI, Assistant Professor, Guanghua School of Management, Peking University
Mai LI, Assistant Professor, Guanghua School of Management, Peking University
Songnan LI, Assistant Professor, University of International Business and Economics
Laura Xiaolei LIU, Boya Distinguished Professor, Guanghua School of Management, Peking University
Wei JIANG, Vice Dean for Faculty and Research and Asa Griggs Candler Professor of Finance, Goizueta Business School, Emory University and Senior Fellow, ABFER
About the Webinar
Financial market development goes hand-in-hand with economic growth. The development of China's capital markets in terms of size, regulations, capability, and efficiency has been impressive. China may now even lead globally in some dimensions, notably e-payments systems. Yet, China's capital markets are still a work-in-progress facing both generic and unique challenges. Other Asian capital markets have even greater uneven development. Some in advanced Asian economies have acquired globally acclaimed reputation and capabilities while various regulatory and structural weaknesses dwarf others. Corporations and investors have been inclined to arbitrage cross-border regulatory and developmental gaps; so the very uneven status of capital markets across Asia is a policy issue for the governments in the entire region and perhaps globally. Analysing the positive and negative lessons in the functioning of Asia's capital markets, and identifying reforms and applications of technology that could further improve Asian capital markets' allocation efficiency, financial inclusion, and forewarning against reforms that might cause problems can benefit practitioners, policymakers and researchers, and can contribute significantly to overall prosperity.
The ABFER and the University of Chicago's Becker Friedman Institute China (BFI-China), in collaboration with National University of Singapore (NUS) Business School, Shanghai Advanced Institute of Finance (SAIF), The Chinese University of Hong Kong (CUHK) Department of Economics, CUHK-Shenzhen and Tsinghua University PBC School of Finance (Tsinghua PBCSF), hope to provide a virtual network to benefit researchers, policymakers, and practitioners from Asia and beyond.