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

80 Pages Posted: 10 Apr 2020 Last revised: 22 Jul 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: July 16, 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 more than doubled since 2000 and is particularly pronounced when public attention to litigation and judges is high. It predominantly affects young businesses and coincides with a shift away from litigation-sensitive industries. In summary, we provide the first evidence that small businesses consider 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 (July 16, 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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