Building upon the real options theory, this study investigates the valuation and real effects of specialized bankruptcy courts using a multiperiod differenceindifferences model, aiming to reveal a new channel through which insolvency regimes can allocate resources more efficiently. The research findings indicate that the establishment of bankruptcy courts significantly enhances the equity value of liquidationoption firms due to strengthened creditor protection. Mechanism tests reveal that bankruptcy courts notably expedite the execution of liquidation options, prompting underperforming firms to reduce their investment scale in a timely manner. Further tests reveal that bankruptcy courts also accelerate the expansion of investment scale for wellperforming firms through market competition effects, thereby boosting the equity value of their growth options. Our findings highlight that the bankruptcy system, by facilitating the timely exit of distressed firms, contributes to improving resource allocation efficiency.