Political Connectedness and Court Outcomes: Evidence from Chinese Corporate Lawsuits

33 Pages Posted: 21 May 2016

See all articles by Haitian Lu

Haitian Lu

Hong Kong Polytechnic University

Hongbo Pan

Wuhan University

Chenying Zhang

University of Pennsylvania - The Wharton School

Date Written: November 1, 2015

Abstract

Many authoritarian regimes lack independent judiciary. This article studies the effect of firms’ political connectedness on the court outcomes by studying a unique hand-collected dataset of 3,323 commercial lawsuits of listed companies in China. We find robust evidence that Chinese courts favor state firms and private firms with personal political ties. The positive effect of political connectedness is pronounced in the outcomes of litigation but not arbitration, and less pronounced in regions with better legal institutions. We also find locally connected firms are favored in their home courts but not favored when the case is tried outside their home province. There is some evidence that China’s 2007 Property Law reduces the court advantage of state firms. Our results cast light on the welfare re-distribution role of courts in emerging and transitional economies.

Keywords: Political Connection, Corporate Lawsuit, China, Courts, Judicial Bias

JEL Classification: P14, K41

Suggested Citation

Lu, Haitian and Pan, Hongbo and Zhang, Chenying, Political Connectedness and Court Outcomes: Evidence from Chinese Corporate Lawsuits (November 1, 2015). Journal of Law and Economics, Vol. 58, No. 4, pp. 829-861, 2015. Available at SSRN: https://ssrn.com/abstract=2782159

Haitian Lu (Contact Author)

Hong Kong Polytechnic University ( email )

School of Accounting and Finance
Hung Hom
Hong Kong

Hongbo Pan

Wuhan University ( email )

Wuhan
China

Chenying Zhang

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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