Judicial Philosophy and Corporate Investment in the United States

42 Pages Posted: 14 Dec 2020

Date Written: November 24, 2020


As the final arbiter of disputes, courts have the potential to significantly impact the fortunes of firms. Using the relationship between corporate investment and federal court composition, I find that firms have strong preferences for the composition of the judiciary along two dimensions. First, firms invest more in jurisdictions with more Republican-appointed judges. Second, firm invest less as judicial uncertainty increases (i.e. the ratio between Republican-appointed and Democratic-appointed judges approaches an even split). To address potential endogenity, I look at changes in corporate investment following the death of sitting federal appellate court judges. I find that corporations significantly reduce their investment when a Republican-appointed judge dies and is replaced by a Democratic-appointed judge. The reverse, however, does not predict a change investment.

Keywords: Corporate Investment, Finance and Law, Political Uncertainty, Federal Courts, Empirical Corporate Finance

JEL Classification: D23, G31, G38, H11, K40

Suggested Citation

Schwartz, Andrew, Judicial Philosophy and Corporate Investment in the United States (November 24, 2020). Available at SSRN: https://ssrn.com/abstract=3736928 or http://dx.doi.org/10.2139/ssrn.3736928

Andrew Schwartz (Contact Author)

Seton Hall University ( email )

400 S Orange Avenue
South Orange, NJ 07079
United States

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