Reform of liquidation and bankruptcy court, financing constraints, and corporate long-term investment

Based on data from listed companies in China between 2011 and 2020, this paper delves into the impact of the reform of liquidation and bankruptcy tribunals on corporate long-term investment. Using a multi-period Difference-in-Differences (DiD) model, we find that the reform of liquidation and bankruptcy tribunals significantly boosts corporate long-term investment levels. Specifically, after the implementation of the reform, listed companies in regions with liquidation and bankruptcy tribunals have higher long-term investment levels compared to those in regions without such tribunals. An analysis of moderating effects reveals the moderating role of financial constraints on the effectiveness of the reform. When corporate financing is highly constrained, creditors' bargaining power increases, and enhancing creditor protection can promote corporate long-term investment levels. Results from heterogeneity tests indicate that for companies with higher debt-to-asset ratios, those with stronger creditor monitoring intensity, the reform of liquidation and bankruptcy tribunals further promotes corporate long-term investment levels by strengthening creditor protection and reducing creditors' motives to intervene in the company's long-term investment activities.