Knowing is Power: The Value of Judge-Lawyer Familiarity

Abstract

Does familiarity matter? We exploit a setting where lead counsel lawyers are selected before judge assignment in corporate bankruptcies and find that cases resolve 25% faster when a judge-lawyer connection exists. The most effective connections arise through previous in-court interactions where lawyers gain first-hand knowledge of judges' preferences. Firms also incur lower legal fees and their creditors recover more when a connection exists. Judges exhibit no preferential bias toward connected firms. Given restricted private communication between lawyers and judges, our paper highlights a new mechanism whereby connections create value: non-transferable knowledge of idiosyncratic preferences.

Keywords: network, preferences, lawyers, Chapter 11, corporate bankruptcy, law firms, judges

JEL Classification: G14, G15, G32