Judicial Independence on Corporate Risk-taking based on the Quasi-natural Experiment of Province High Court’s Offsite Exchange

Shuangrui Liu

doi:10.54691/r04qn633

Authors

Shuangrui Liu

DOI:

https://doi.org/10.54691/r04qn633

Keywords:

Judicial Independence; High Court’s Offsite Exchange; Performance Pressure; Corporate Risk-taking.

Abstract

Judicial independence is an important means to strengthen the construction of the legal system, and its economic consequences have attracted much attention. Based on the quasi-natural experiment of judges' cross-regional exchanges in 2013 and using data from listed companies from 2009 to 2016, this paper explores the impact of judicial independence on corporate risk-taking. We find that there is a negative relationship between judicial independence and corporate risk-taking, and this conclusion remains valid after multiple robustness tests. Furthermore, the inhibitory effect of judicial independence on corporate risk-taking is more pronounced in companies with higher analyst pressure, higher retail investor pressure, or the presence of institutional selling. Mechanism analysis shows that judicial independence inhibits corporate risk-taking by increasing the amount of litigation and reducing net profit. These results are consistent with the logic that corporate managers reduce corporate risk-taking to alleviate performance pressure. This study provides a new perspective and strong evidence for the economic consequences of judicial independence.

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