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: Suggested Citation