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Judicial independence and corporate financialization: Evidence from China

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  • Pan, Ailing
  • Zhang, Qihao
  • Tang, Zheng
  • Qiu, Jinlong

Abstract

This study employs China's establishment of circuit tribunals (CCT) to explore how enhanced judicial quality affects corporate financialization. Using a sample of Chinese A-share listed firms from 2007 to 2019, we reveal a 16.37 % decline in corporate financialization due to CCT. Mechanism analysis reveals that this effect operates through a decreased perception of economic policy uncertainty, improved access to external financing, and reduced non-productive expenditures. Consistent with these paths, heterogeneity analyses further demonstrate that the link between CCT and financialization is stronger among private firms, small and medium-sized enterprises (SMEs), and firms without political connections. The disaggregated results show that CCT primarily reduces the highly liquid and high-yield financial investments. Additionally, our results indicate that improved judicial quality can mitigate corporate over-financialization. The reduced financial investments will shift toward physical and R&D investments, enhancing product market performance and firm value. Our findings contribute a new perspective on the factors influencing corporate financialization and offer valuable recommendations for policymakers seeking to foster real economic growth by enhancing judicial quality.

Suggested Citation

  • Pan, Ailing & Zhang, Qihao & Tang, Zheng & Qiu, Jinlong, 2025. "Judicial independence and corporate financialization: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:pacfin:v:92:y:2025:i:c:s0927538x2500143x
    DOI: 10.1016/j.pacfin.2025.102806
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