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The Effects of Political Connections and State Ownership on Corporate Litigation in China

  • Michael Firth
  • Oliver M. Rui
  • Wenfeng Wu

We examine the effects of corporate lawsuits in China and find that litigation announcements depress the stock prices of both defendant and plaintiff firms. Financially distressed defendants suffer lower stock returns. We find that politically connected defendants are favored in the judicial process: they have higher stock returns and are more likely to appeal against adverse outcomes and to obtain a favorable appeal result. State-controlled defendants fare better than privately controlled defendants when it comes to appeals but do not have higher stock returns. The evidence suggests that there is bias in the judicial process.

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File URL: http://www.jstor.org/stable/pdfplus/10.1086/659261
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File URL: http://www.jstor.org/stable/full/10.1086/659261
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 54 (2011)
Issue (Month): 3 ()
Pages: 573 - 607

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Handle: RePEc:ucp:jlawec:doi:10.1086/659261
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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