Judicial independence and growth investors' decisions

Abstract

Using Chinese A-share listed companies from 2011 to 2016, we consider the establishment of China's National Circuit Courts as a quasi-natural experiment and empirically investigate the impact of judicial independence on the decisions of growth investors using the difference-in-difference (DID) method. Our findings suggest that judicial independence significantly facilitates growth investors' investment in local firms. This effect mainly stems from the reduction of business risks and the promotion of corporate innovation. Heterogeneity analysis reveals that judicial independence has a stronger promoting effect on growth investors' investment in firms in high-tech, high-growth, and poor initial legal environment.