From courts to capital: how bankruptcy judicial reform affects corporate investment efficiency

Based on data from China’s A-share listed companies from 2014 to 2022, this paper uses the establishment of Chinese bankruptcy courts (BCs) as a quasi-natural experiment and employs a staggered difference-in-differences (DID) method to test the impact of bankruptcy judicial system reform on corporate investment efficiency. We find that after the reform, corporate investment efficiency significantly improved, with non-optimal investment efficiency decreasing by 7.5%, primarily due to a 9.7% reduction in underinvestment. The underlying mechanisms are that bankruptcy judicial reform improves financing expectations, strengthens governance, and optimizes resource allocation. This effect is more significant in non-state-owned enterprises, firms facing greater industry competition, and firms in regions with more developed financial systems.