The Aftermath of Corporate Default with Chinese Characteristics

43 Pages Posted: 19 Apr 2017 Last revised: 12 Nov 2020

See all articles by Jing Ai

Jing Ai

University of Hawaii at Manoa - Shidler College of Business

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance

Haoyu Gao

Renmin University of China

Xiaoguang Yang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science

Lin Zhao

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science; Chinese Academy of Sciences (CAS) - University of Chinese Academy of Sciences

Date Written: November 11, 2020

Abstract

We study the consequences of corporate default using China’s national credit registry. Borrowing after default declines if the lender or borrower is not state-controlled or if the borrower is located in a highly developed province. After default, a key social indicator, employment, does not increase except for state-controlled firms. A new bankruptcy law that increases creditor rights but reduces protection for employees is associated with lower post-default borrowing and employment. In contrast, state-controlled firms borrow more post-default under a government initiative intended to reduce bureaucratic interference in the economy. Our evidence highlights trade-offs between political, commercial, and social goals faced by bankers and policymakers.

Keywords: bank loans, corporate default, default resolution, China, state-owned enterprises, government controlled banks

JEL Classification: G21, G28, G33, G38

Suggested Citation

Ai, Jing and Bailey, Warren B. and Gao, Haoyu and Yang, Xiaoguang and Zhao, Lin, The Aftermath of Corporate Default with Chinese Characteristics (November 11, 2020). Available at SSRN: https://ssrn.com/abstract=2955110 or http://dx.doi.org/10.2139/ssrn.2955110

Jing Ai

University of Hawaii at Manoa - Shidler College of Business ( email )

2404 Maile Way
Honolulu, HI 96822
United States

Warren B. Bailey (Contact Author)

Cornell University ( email )

S. C. Johnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance ( email )

China

Haoyu Gao

Renmin University of China ( email )

Mingde main building
Haidian district, No. 59,
Beijing, Beijing 100872
China

Xiaoguang Yang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Beijing
China

Lin Zhao

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Zhongguancun East Road 55
Beijing, 100190
China

Chinese Academy of Sciences (CAS) - University of Chinese Academy of Sciences ( email )

Zhongguancun Road 80
Beijing, Beijing 100190
China

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