FINTECH THRUST SEMINAR | Empowering through Courts: Judicial Centralization and Municipal Financing in China
Empowering through Courts: Judicial Centralization and Municipal Financing in China
Abstract:
This study finds that reducing political influence over local courts weakens local government debt capacity. We establish this result by exploiting the staggered roll-out of a judicial centralization reform aimed at alleviating local court capture in China and find reduced judicial favoritism towards local governments post-reform. The majority of local government lawsuits are with contractors over government payment delays. The reform not only increases government lawsuit losses but also exposes their credit risk, as payment delays without court support signal government liquidity constraint. Investors respond by tightening lending and increasing interest rates, which curbs government spending.
Yang Su is an assistant professor of finance at the Chinese University of Hong Kong Business School. His main research interests include real estate, public finance, banking and Chinese financial markets. In his current research agenda, he focuses on municipal finance and the interactions between government financing behaviors, real estate market and the real economy. Prof. Su is also interested in the information and moral hazard issues in the banking industry. He got his PhD degree in finance from University of Chicago Booth School of Business in 2023.