Start-Ups Judging Judges: Evidence That Litigation Risk Shapes the Small Business Environment

69 Pages Posted: 10 Apr 2020 Last revised: 5 Jun 2024

See all articles by Mehmet Canayaz

Mehmet Canayaz

Pennsylvania State University - Smeal College of Business

Matthew Gustafson

Pennsylvania State University - Smeal College of Business

Date Written: June 05, 2024

Abstract

We find that shifts toward more liberal (i.e., less pro-business) courts predict reductions in local small business activity. A one standard deviation increase in liberal ideology predicts a 1% reduction in firm count, relative to bordering counties in different federal court jurisdictions. This effect has doubled since 2000 and manifests primarily among young businesses. Consistent with a litigation risk mechanism, there is a simultaneous shift away from litigation-sensitive industries. In sum, we offer the first evidence that small business start-ups consider an area's litigation risk when deciding whether or where to operate.

Keywords: Judicial Ideology, Business Start-ups, Litigation Risk

JEL Classification: K10, L10, L20, G30

Suggested Citation

Canayaz, Mehmet and Gustafson, Matthew, Start-Ups Judging Judges: Evidence That Litigation Risk Shapes the Small Business Environment (June 05, 2024). Available at SSRN: https://ssrn.com/abstract=3555366 or http://dx.doi.org/10.2139/ssrn.3555366

Mehmet Canayaz (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

Matthew Gustafson

Pennsylvania State University - Smeal College of Business ( email )

East Park Avenue
University Park, PA 16802
United States

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