Abstract

The topics of laws and finance have attracted widespread academic interest. We investigate whether and how bankruptcy judicial system reform affects corporate financial litigation risk using the unique litigation data disclosed by Chinese listed companies. The results show that the bankruptcy judicial system reform positively reduces the corporate risk of being sued in financial disputes. Further research shows that the association between bankruptcy judicial system reforms and corporate financial litigation risk is more pronounced for firms with greater economic policy uncertainty and market competition. We also find that the bankruptcy judicial system reform increases the threat of bankruptcy, thus stimulating corporations to implement steady business strategies and increase their cash holdings. These measures reduce the risk of corporate financial litigation. This study emphasizes the role of the bankruptcy judicial system reform in regulating the behavior of listed companies.

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