Many authoritarian regimes lack an independent judiciary. This article studies the effect of firms’ political connectedness on court outcomes using a unique hand-collected data set of 3,323 commercial lawsuits involving listed companies in China. We find robust evidence that Chinese courts favor state firms and private firms with personal political ties. The positive effect of political connectedness is pronounced in the outcomes of litigation but not arbitration and is less pronounced in regions with better legal institutions. We also find that locally connected firms are favored in their home courts but not when the case is tried outside their home province. There is some evidence that China’s 2007 Property Law reduces the advantage of state firms. Our results cast light on the welfare redistribution role of courts in emerging and transitional economies.
ASJC Scopus subject areas
- Economics and Econometrics