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

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

Oliver M. Rui

China Europe International Business School (CEIBS)

Wenfeng Wu

Shanghai Jiao Tong University - Antai College of Economics & Management

Date Written: August 7, 2012

Abstract

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

Suggested Citation

Firth, Michael and Rui, Oliver M. and Wu, Wenfeng, The Effects of Political Connections and State Ownership on Corporate Litigation in China (August 7, 2012). Journal of Law and Economics, Vol. 54, No. 3, pp. 573-607, 2012, Available at SSRN: https://ssrn.com/abstract=2125694

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Oliver M. Rui

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

Wenfeng Wu (Contact Author)

Shanghai Jiao Tong University - Antai College of Economics & Management ( email )

No. 535 Fahuazhen Road
Shanghai, Shanghai 200052
China

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