Where legal systems and market forces enforce contracts inadequately, vertical integration can circumvent these transaction difficulties. But, such environments often also feature highly interventionist government, and even corruption. Vertical integration might then enhance returns to political...

We investigate how institutional factors influence the behavior of distressed firms in emerging markets, where bankruptcy laws are often weak and debtors have greater bargaining power in distress. By studying two comprehensive samples of distressed firms in China, we find that local government...