Political Connectedness and Court Outcomes: Evidence from Chinese Corporate Lawsuits

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