Establishment of Bankruptcy Courts and Enterprise Group Cash Distribution

Based on agency theory and the precautionary cash holding hypothesis, this study empirically examines the impact of the establishment of bankruptcy courts on the internal cash distribution within corporate groups. The results indicate that the establishment of bankruptcy courts significantly reduces the cash holding ratio of subsidiaries. The alleviation of equity agency costs and the mitigation of bankruptcy risk are identified as core mechanisms. Moreover, increased fund misappropriation by major shareholders, cross-subsidization among listed companies and related parties, higher market value leverage of the group, and increased ownership concentration further strengthen the reduction effect of bankruptcy courts on subsidiaries' cash holdings. Heterogeneity tests reveal that this reduction effect is more pronounced when subsidiaries repatriate more profits, parent companies have more investment opportunities, profitability is stronger, or the group is in a growth or decline stage. Conversely, financing constraints weaken this effect. Further analysis of economic consequences shows that bankruptcy courts not only help reduce the overall default risk of enterprises but also enhance corporate value by promoting the centralization of cash within the group. This study extends the discussion in the "law and finance" literature to the level of internal resource allocation within corporate groups, providing empirical evidence for assessing the impact of bankruptcy judicial reform on the resource structure of corporate groups.