The Effects of Political Connections and State Ownership on Corporate Litigation in China
Journal of Law and Economics, Vol. 54, No. 3, pp. 573-607, 2012
Posted: 7 Aug 2012
Date Written: August 7, 2012
We examine the effects of corporate lawsuits in China and find that litigation announcements depress the stock prices of both defendant and plaintiff firms. Financially distressed defendants suffer lower stock returns. We find that politically connected defendants are favored in the judicial process: they have higher stock returns and are more likely to appeal against adverse outcomes and to obtain a favorable appeal result. State-controlled defendants fare better than privately controlled defendants when it comes to appeals but do not have higher stock returns. The evidence suggests that there is bias in the judicial process.
Keywords: corporate litigation, wealth effects, court bias, state ownership, political connections
JEL Classification: D72, D73, G28, K40
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