Judicial Independence and US State Bond Ratings: An Empirical Investigation
Forthcoming at Public Budgeting & Finance
32 Pages Posted: 21 Feb 2015 Last revised: 6 Nov 2016
Date Written: November 1, 2016
Significant research has assessed how judicial independence influences a number of economic outcomes, however less has been done to evaluate how financial institutions perceive an independent judiciary. Therefore, this paper considers how greater judicial independence across US states may affect state bond ratings. Overall, the results suggest that states with relatively more independent judiciaries do in fact have higher bond ratings, which translates into lower borrowing costs. The results are robust to a number of specifications and suggest the role that an independent judiciary plays in contract enforcement along with several other important implications for future research.
Keywords: Judicial Independence, Sovereign Debt, Default, Bond Ratings, Contract Enforcement
JEL Classification: D78, G20, H11, H73, K12
Suggested Citation: Suggested Citation