Judicial System Reform and Corporate Employment in China: Evidence from the Establishment of Circuit Courts

This study employed a difference‐in‐differences model to examine whether judicial reform could affect corporate employment, using the establishment of China's circuit courts in 2015 as a quasi‐natural experiment. It found that the reform of the judicial system enhanced corporate employment significantly. The effects were stronger in enterprises with limited external financing and those situated in provinces with high levels of administrative intervention. Mechanism analysis suggested that the reform encouraged firms to pursue litigation more actively, reducing local judicial protectionism. It also promoted employment by easing financing constraints, expanding firm output, and improving productivity. A cost–benefit analysis showed that the circuit courts were highly efficient in promoting employment. Further analysis found that local state‐owned enterprises tended to increase labor input by cutting wages and capital investment whereas private firms raised capital investment to facilitate capital deepening.