Creditor protection and debt distribution in business groups: a quasi-natural experiment based on the establishment of liquidation and bankruptcy tribunals

A sound bankruptcy framework facilitates financial resource allocation and economic activity. Exploiting the establishment of liquidation and bankruptcy tribunals in China as a quasi-natural experiment, we examine its effect on debt distribution within business groups. Using Chinese A-share listed firms from 2007 to 2022 and the simultaneous disclosure of consolidated and parent-company financial statements, we find that bankruptcy adjudication reform significantly concentrates group debt at the parent-company level. This effect is driven by short-term and bank debt, with no significant changes in long-term or public debt concentration. Mechanism tests suggest that reduced financing constraints, higher liquidation values, and greater creditor tolerance for failure promote centralized borrowing. Following the reform, parent companies also provide more funding to subsidiaries through internal capital markets. These findings provide micro-level evidence that bankruptcy adjudication reform improves resource allocation and reveal the creditor-protection motives underlying centralized borrowing within business groups.