Does enhanced judicial protection reduce illegal overtime work? Evidence from China's circuit court reform

Why do workers stay in offices past legal hours while companies face minimal consequences? We examine this enforcement paradox through China's circuit court reform—a natural experiment spanning 2012-2022 that reveals when judicial independence transforms corporate behavior. Using NASA satellite nighttime light data to track illegal overtime combined with difference-in-differences estimation, we find circuit court establishment significantly reduces corporate labor violations. The effects concentrate among private enterprises, human capital-intensive firms, and competitive industries. Counterintuitively, the strongest compliance improvements occur in regions with historically weak rule of law, suggesting judicial reform creates deterrent effects precisely where enforcement was previously most deficient. These findings challenge conventional assumptions about regulatory effectiveness by demonstrating that judicial reforms create heterogeneous compliance responses across firm types. The results contribute to corporate governance literature by revealing how legal enforcement improvements differentially constrain corporate behavior depending on ownership structure and competitive environment, with significant implications for regulatory design in emerging markets where institutional quality varies substantially across regions.