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Does judicial independence improve corporate investment efficiency?

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  • Song, Jiangmei
  • Chang, Fei

Abstract

Circuit courts represent a major institutional innovation aimed at reducing local protectionism and strengthening legal enforcement. Using panel data on Chinese A-share listed firms from 2010 to 2022, a staggered difference-in-differences approach is employed to identify the causal impact of judicial reform. Results show that circuit courts significantly reduce inefficient investment—mainly by curbing overinvestment—while effects on underinvestment are limited. The effectiveness of circuit courts is moderated by financing constraints, information transparency, and debt maturity structure, highlighting the complementarity between legal institutions and market mechanisms. The policy impact is more pronounced in firms with weak governance, frequent violations, or CEO duality.

Suggested Citation

  • Song, Jiangmei & Chang, Fei, 2025. "Does judicial independence improve corporate investment efficiency?," Finance Research Letters, Elsevier, vol. 85(PE).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pe:s1544612325015028
    DOI: 10.1016/j.frl.2025.108248
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    References listed on IDEAS

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