Business Courts and Firm Performance

Abstract

Does it matter for firm performance whether corporations have access to high-quality courts for litigating their internal affairs? To shed some light on this question, this paper focuses on the creation of business courts in various states between 1990 and 2015. Employing a difference-in-difference approach, I find that the creation of business courts is associated with a five to seven percent increase in Tobin's q as well as with a higher likelihood of being a target in a completed merger with positive cumulative abnormal returns for the target shareholders. These findings are both statistically and economically significant. I also find some evidence that business courts may have a positive impact on return on equity and return on assets, but those results are statistically significant only in some specifications.

Keywords: courts, business courts

JEL Classification: G30, G32, G34, K22