The impact of judicial prejudice in bankruptcy on creditors and local financial development

Abstract

In this research, we explore the implication of judicial prejudice in bankruptcy for creditor interests and local financial market development. Based on prefecture-level data, we find compelling evidence that judicial prejudice leads to capital market frictions. Regions with stronger judicial prejudice have higher borrowing costs. Moreover, judicial prejudice is negatively related to local financial market development. In sum, our research sheds light on the impact of judicial prejudice on financial market development.