Judicial independence and corporate innovation: Evidence from the establishment of circuit courts

Shaojie Lai, Laifeng Yang, Qing Wang and Hamish D. Anderson

Journal of Corporate Finance, 2023, vol. 80, issue C

Abstract: This study explores the effects of judicial independence on corporate innovation by analyzing the staggered establishment of Circuit Courts in China. We find that introducing Circuit Courts increases corporate innovation, particularly for central state-owned enterprises and private firms. Channel analysis shows that Circuit Courts significantly reduce local judicial protectionism, ease financial constraints, and improve corporate governance, which stimulates innovation. The positive effects of Circuit Courts are more pronounced in cities facing severe political intervention, regions with weak legal environments, and private firms without political or banking connections. Our results are robust to endogeneity concerns, alternative measures and specification models. Overall, this study supports the theoretical arguments that institutions matter and that improvements in judicial quality boost firms' incentives to innovate.

Keywords: Circuit courts; Judicial independence; Corporate innovation; Law and finance (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:80:y:2023:i:c:s0929119923000731

DOI: 10.1016/j.jcorpfin.2023.102424

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