Courts In China Research Articles

Corrigendum to “Environmental legal institutions and management earnings forecasts: Evidence from the establishment of environmental courts in China” [International Review of Economics and Finance 93 (2024) 545–573 IREF-D-23-00823]

Corrigendum to “Environmental legal institutions and management earnings forecasts: Evidence from the establishment of environmental courts in China” [International Review of Economics and Finance 93 (2024) 545–573 IREF-D-23-00823]

Promoting corporate independent innovation through judicial protection of intellectual property rights

This study examines the impact of judicial protection of intellectual property rights on firms' independent innovation. Using a staggered difference-in-differences model with panel data from Chinese manufacturing listed businesses (2014–2021) and the successive establishment of intellectual property courts in Chinese prefectural-level cities as a quasi-natural experiment, we find that establishing intellectual property courts in China encourages businesses to accumulate more technology-based intangible assets. Mechanism analysis suggests that judicial intellectual property protection enhances enterprises' independent innovation capacity by establishing a conducive institutional framework. This stimulating effect is particularly significant for industry-leading companies with technological supremacy. Heterogeneity analysis reveals that judicial intellectual property protection increases the generation of patents and trade secrets, with a more pronounced effect on firms receiving higher government research and development subsidies and better tax incentives. This study offers valuable insights for policymakers to encourage corporate independent innovation.

Environment court, shareholder conflict and corporate governance: evidence from market reactions to bank loan announcements

Purpose This paper aims to investigate the impact of environmental risk on corporate governance through market reaction to bank loan announcements. Design/methodology/approach Using the establishment of environment court in China as a quasi-natural experiment, this paper adopt the difference-in-differences approach based on listed firms during 2003–2013 to explore the impact of environment court on corporate governance. Findings This paper find that the environment court would weaken the cumulative abnormal return of loan announcements. Then, this paper confirm that the potential reason is that environment court worsens the interest conflict between majority and minority shareholders. Further, cross-sectional analysis suggests that bank’s supervision, market competition and analyst coverage can alleviate the impact of environment court on corporate governance. Practical implications Environment courts intensify firms’ internal interest disputes, thus causing the decrease of corporate governance, which can be observed through the effect of bank loan announcements. Social implications This paper provide reference for environmental policy formulation and implementation, firms’ decision-makings and improving the banking regulatory system. Originality/value This paper makes a contribution to the studies about the impact of environment court on firms’ decision-making and investors’ reaction, the impact of external factors on corporate governance and bank loan announcements effect.

Bankruptcy law enforcement and corporate digital transformation: evidence from a quasi-natural experiment in China

ABSTRACT Digital transformation presents both opportunities and challenges for companies. However, there is little literature that investigates external factors affecting corporate digital transformation. This paper explores the impact of bankruptcy law enforcement on corporate digital transformation, using the introduction of bankruptcy courts in China as a quasi-natural experiment. Using the 2010–2019 data of Chinese A-share listed companies, we find that bankruptcy courts significantly increase digital transformation by 17.5%. The effects are driven by increased debt financing and reallocation of digital talent, and are more pronounced for firms reliant on external financing and in cities with more zombie firms. Our study highlights the importance of legal institutions in supporting digital initiatives and offers insights for policymakers and managers to drive digitalization. Future research could expand to SMEs and other influencing factors.

Environmental Justice and Corporate Green Innovation: The Role of Legitimacy Pressures

This study examines the impact of environmental judicial reinforcement on green technology innovation, constructing a progressive difference-in-differences model using firm- and city-level panel data from 2006 to 2019 and taking the successive establishment of environmental courts by the Intermediate People’s Court in Chinese prefectural-level cities as a quasi-natural experiment. We find that establishing environmental courts in China promotes green technology innovation. This finding still holds after a series of robustness tests such as selected fixed-effects Poisson model regression. The mechanism analysis suggests that environmental courts primarily promote increased green innovation output by heavily polluting firms by exerting more substantial pressure regarding environmental legitimacy. The heterogeneity analysis reveals that the positive impact of the establishment of environmental courts on green technology innovation is more pronounced in water pollution-intensive industries and areas with high public participation and media attention. Our findings provide new insights into how environmental justice affects firms’ green innovation and validate the Porter hypothesis. Also, they serves as a reference for constructing environmental courts in China and other policy jurisdictions that may be interested.

Greening through courts:Environmental law enforcement and corporate green innovation

Environmental laws represent significant external factors influencing corporate green behavior. Previous research has predominantly concentrated on assessing the role of environmental courts in mitigating the effects of environmental pollution. Leveraging the establishment of environmental courts in China as a quasi-natural experiment, this study investigates whether environmental law enforcement can promote corporate innovation. Our findings indicate that the establishment of environmental courts can significantly enhance the green innovation of heavily polluting firms, primarily through mechanisms related to environmental pollution cost pressure and R&D investment. The promoting effect of environmental courts on corporate green innovation is particularly pronounced in state-owned enterprises, large-scale enterprises, and firms receiving government green subsidies. Conversely, this effect is attenuated in the western regions of China and in areas with lower public environmental concerns. This study offers a novel perspective on understanding green innovation and provides policy implications for managing environmental courts.

Judicial reform and corporate cash holdings: Evidence from the establishment of circuit courts in China

This paper studies the effect of judicial reform on corporate cash holdings. Leveraging the establishment of Circuit Courts in China as an exogenous shock, we demonstrate that firms reduce cash holdings by 10.4% when under the jurisdiction of a court. The two primary channels through which the courts affect cash holdings are the availability of cheaper external financing and lower litigation uncertainty. This effect is more pronounced in financially constrained, private, and non-politically connected firms. Moreover, the equivalent perceived value of one additional CNY of cash held by firms declines by ￥0.091 due to lower precautionary motives. Further analysis shows that firms are more likely to pursue returns from alternative strategies by investing more, raising more capital, and buying back more shares. Collectively, these results suggest that judicial independence can have potentially important consequences for corporate cash management strategies.

The anti-suit injunctions in patent litigation in China: what role for judicial self-restraint?

Abstract Starting from 2020, the Chinese courts have actively participated in the jurisdictional battles for the standard essential patent (SEP) disputes, a pivotal development marked by the Supreme People’s Court’s inaugural SEP-related anti-suit injunction (ASI) in Huawei v Conversant. Subsequently, lower courts in China have emulated this approach by issuing ASIs targeting SEPs in the domain of information and communication technology. The present study highlights the features of the Chinese ‘act preservation measures’ by comparing them with the typical ASIs originally developed in the common law jurisdictions. This comparison reveals significant divergence in the factors considered by Chinese courts issuing ASIs, particularly in the context of cross-border patent litigation. The study aims at elucidating potential defenses that the respondents in SEP litigation may employ to contest the issuance of ASIs in Chinese judicial proceedings, with particular attention accorded to the principles of comity and public interest. The article concludes that the invocation of international comity and public interest in SEP litigation will encounter a formalistic assessment by the Chinese judiciary due to potential conflicts with statutory provisions and the lack of a more context-specific analysis. As a result, in the absence of supra-national mechanisms that would address the problem of parallel litigation, there appears to be little room for judicial self-restraint.

Environmental legal institutions and management earnings forecasts: Evidence from the establishment of environmental courts in China

This paper investigates whether and how managers of highly polluting firms adjust their earnings forecast behaviors in response to the introduction of environmental legal institutions. Using the establishment of environmental courts in China as a quasi-natural experiment, our triple difference-in-differences (DID) estimation shows that environmental courts significantly increase the likelihood of management earnings forecasts for highly polluting firms, compared to non-highly polluting firms. This association becomes more pronounced for firms with stronger monitoring power, higher environmental litigation risk, and greater earnings uncertainty. Additionally, we show that highly polluting firms improve the precision and accuracy of their management earnings forecasts following the establishment of environmental courts. Furthermore, we provide evidence that our results do not support the opportunistic perspective that suggests managers strategically issue more positive earnings forecasts to inflate stakeholders' expectations subsequent to the implementation of environmental courts. Overall, our research indicates that environmental legal institutions make firms with greater environmental concerns to provide more forward-looking information, thereby alleviating stakeholders’ apprehensions regarding future profitability prospects.

Turning green through within‐firm adjustment: Evidence from environmental court in China

AbstractThis paper investigates how the setup of special environmental courts is accountable for firms' internal adjustment of production and export across industries with different pollution intensities. Inspired by a simple theoretical model, we find that, after the establishment of environmental courts, firms see a larger decrease in export value, export quantity, export variety as well as export destination in more polluting industries. We further find different impacts on firms with varying ownership and size. These findings imply that companies reallocate their available resources from more polluting varieties to less polluting ones, thus turning green through this within‐firm adjustment.

Copyright Infringement Liability of NFT Digital Artwork Platforms

The development of information technology and the evolution of laws have given rise to new issues and disputes in the determination of platform responsibilities in cases of disputes over internet dissemination rights. With the advancement of the blockchain industry, the Hangzhou Internet Court in China has determined that NFT digital artwork platforms can be deemed as aiding infringement in copyright disputes. This article aims to clarify the role played by platforms in infringement cases by analyzing the technical characteristics of NFT digital artwork platforms. It will also discuss factors in determining the liability of NFT digital artwork platforms based on judicial practices, thereby elucidating the principle of "notice + necessary measures" applicable to these platforms.

Bankruptcy judicial reform and corporate trade credit financing

In this paper, we rely on an exogenous shock to examine the impact of bankruptcy judicial reform on firms' trade credit financing. We employ a staggered difference-in-differences design based on the introduction of bankruptcy courts in China and find that the implementation of bankruptcy judicial reform significantly reduces firms' trade credit financing. Mechanism tests reveal that improved judicial efficiency increases the risk perception of local firms, which discourages trade credit financing. Heterogeneity tests show that the above effect is more pronounced in firms with higher bankruptcy risks, firms with state ownership, and in regions where bankruptcy administrators have been established. Conversely, higher supplier concentration attenuates the inhibitory effect of bankruptcy judicial reform. Further analyses show that the reform mainly reduces firms' trade credit provided by customers and the trade credit with financial attributes. In addition, the reform lowers the sales of firms' suppliers but does not affect their earnings performance, while customers benefit from the reform as their earnings increase while sales do not change significantly. The findings of this paper shed light on the impact of bankruptcy judicial efficiency on corporate financing structure, and provide policy implications for promoting the construction of China's bankruptcy rule of law and preventing financial risks.

Does legal justice promote stakeholder justice? Evidence from a judicial reform in China

This paper investigates how judicial quality affects corporate social responsibility (CSR) performance. Employing a difference-in-differences model based on the establishment of circuit courts in China and a sample of Chinese A-share listed firms from 2010 to 2020, we find that enhanced judicial quality improves firms' CSR performance. Further analysis shows that CSR helps reduce the incidence and expense of lawsuits and financial constraints arising after the circuit court establishment and mitigates negative market responses toward lawsuit announcements. This suggests that CSR has strategic value against lawsuits and firms' incentives to reduce litigation costs, financial constraints, and adverse market reactions are the potential mechanisms. The effect of judicial quality on CSR performance is more pronounced for firms with greater ex-ante litigation risk, lower ex-ante CSR awareness, and close to circuit courts. Overall, this study highlights a novel externality of the judiciary and suggests that legal justice can promote stakeholder justice.

Punishment or deterrence? Environmental justice construction and corporate equity financing––Evidence from environmental courts

In this study, we explore the impact of the establishment of environmental courts, an environmental justice system, on the cost of equity capital. Based on a quasi-natural experiment of establishing environmental courts in China, we find that they have a deterrent effect and reduce the cost of equity capital for heavily polluting firms in localities. We also find that a low proportion of managerial ownership, a low level of analyst attention, and high environmental uncertainty induce this deterrent effect. Furthermore, mechanism tests indicate that environmental courts enhance corporate environmental engagement and corporate ESG ratings, increase long-term institutional investor ownership, and reduce urban environmental violations to achieve a deterrent effect. The findings are more pronounced for the trial court sample, firms in cities with lower public participation in environmental protection, and firms with lower environmental information transparency. We also suggest the impacts and underlying mechanisms of the environmental justice system on the equity capital market, which is conducive to long-term planning by firm managers.

Effect of Environmental Courts on Pollution Abatement: A Spatial Difference-in-Differences Analysis

This paper investigates the impact of environmental courts on pollution abatement at the city level, utilizing the establishment of environmental courts in China as a quasi-experiment. A spatial difference-in-differences model is employed to control for the influence of environmental courts on neighbouring non-pilot cities. The results underscore the effectiveness of environmental courts in reducing industrial pollutant emissions, evident in both the pilot areas and adjacent non-pilot areas. The influence of environmental courts on pollution abatement is more pronounced in cities characterized by stronger environmental regulations, higher level of economic agglomeration, and higher level of openness. Mechanism analysis shows that environmental courts promote environmental supervision by governments, public participation in environmental protection, and expenditure on environmental governance by firms. In summary, this paper unveils the tangible effects of environmental courts on pollution abatement and elucidates the mechanisms underpinning this relationship. These findings provide timely implications for regulators concerned with environmental protection.

An empirical study of micro‐ and small‐enterprise bankruptcy protection under the COVID‐19 pandemic: New evidence from China

AbstractMicro‐ and small‐enterprises (MSEs) serve as a strong foundation for sustainable and stable economic and social development in countries worldwide. However, they are highly susceptible to bankruptcy crises, a phenomenon that has been significantly amplified by the COVID‐19 pandemic. The article presents an empirical investigation of the application of the bankruptcy system to MSEs, using data on MSE bankruptcies published by the Sichuan courts in China in 2020 during the COVID‐19 pandemic as evidence. The article reveals that MSEs face a triple dilemma when applying bankruptcy procedures. Firstly, the legal system for bankruptcy is unsound. Secondly, the institutional mechanism for bankruptcy is imperfect. And thirdly, the social environment surrounding bankruptcy is not conducive. The article presents a novel approach to address bankruptcy issues by suggesting the implementation of streamlined bankruptcy procedures, a reorganization system for small and micro‐enterprises and a personal bankruptcy system. Additionally, it proposes enhancing the institutional framework for the selection, evaluation and oversight of bankruptcy judges and administrators, as well as the establishment of third‐party institutions. Furthermore, it advocates for a modernized understanding of bankruptcy, the provision of pre‐bankruptcy services and the creation of a bankruptcy protection system. The article presents a unique sample of international comparative studies on MSEs and proposes a new approach to examining bankruptcy protection for MSEs in China.

Consensus and Compulsion: The Extra-territorial Effect of Chinese Judicial and Specially-Invited Mediation in Common Law Countries

This article conducts exhaustive research on case law in major common law jurisdictions (Australia, Canada, Hong Kong, New Zealand, Singapore, the UK, and the US) regarding the recognition and enforcement of Chinese judicial mediation decisions (MTS). In contrast to the rich literature criticizing the systematic deficiency of Chinese judicial mediation where an adjudicator plays the dual role of mediator and judge in the same case and the consequent injustice to the parties, the deficiency is not an issue currently in recognition and enforcement of MTS in common law jurisdictions. Why is this so and what would be the future trend? Answering these questions, this article explores the recent expansion from judicial mediation to Specially-Invited Mediation at the people's courts in China and discusses whether the features of Specially-Invited Mediation impact the recognition and enforcement of MTS at the common law jurisdictions. It also addresses controversies on applicable law, challenges to the enforceability of civil liability clauses, debates on the finality of MTS, and recognition and enforcement of MTS under China's judicial assistance agreements, the Hague Choice-of-Court Convention, the Hague Judgments Convention, and the Singapore Mediation Convention.

Can strengthening environmental justice promote carbon reduction? Evidence from environmental courts in China.

Environmental justice is an important safeguard for pollution control, and this paper is interested in its ability to promote carbon emission reduction. One unique facet of reinforcing local environmental justice involves the establishment of environmental courts by Intermediate People's Courts. Taking this as the starting point, this study constructs a quasi-natural experiment to investigate the strengthening of urban environmental justice. Analyzing empirical data from 283 prefecture-level cities in China spanning 2006 to 2019, we employ multi-period and spatial difference-in-differences approaches to probe the impact of environmental justice strengthening on carbon reduction. Our results indicate a substantial contribution of strengthened environmental justice to reducing carbon emissions. Specifically, the establishment of environmental courts can curtail carbon emissions by an estimated range of 11.7 to 12.9%. Also, the mechanism analysis underscores that the carbon reduction effect primarily arises from enhanced efficiency in processing environmental cases. Moreover, this effect is notably pronounced in regions with robust governmental environmental regulations. Notably, in areas with limited public environmental concern, environmental courts effectively complement existing environmental regulations. Furthermore, a significant positive spillover effect of environmental courts on carbon emission reduction is observed in geographically adjacent economic zones.

Review of China’s unfair competition law: impact on intellectual property

The article examines the economic and legal problems of Chinese legislation on combating unfair competition, in particular, recent changes in the context of the impact on intellectual property (IP), abuse of IP rights in the digital economy. Law enforcement practice, protection against unfair competition in court proceedings, issues of investigation of cases and responsibility for violations are analyzed. Since the entry into force of the Anti-Unfair Competition Law 30 years ago, 757,000 cases of unfair competition have been investigated, fines paid or money confiscated amounting to 12,88 billion yuan (about 1,8 billion USD). This indicates a significant economic impact of competition legislation. The Supreme People’s Court of China has issued an Interpretation on the Application of the PRC Anti-Unfair Competition Law. The document clarifies issues related to general provisions, business ethics, confusion through imitation, false advertising, and unfair competition over the Internet and outside China. It explains that the general provisions of the Act apply only if the provisions of IP laws and specific provisions of the Act do not apply. The document defines two types of unfair competition through the Internet, namely: 1) insertion of a link or forced redirection of a URL to an Internet product or service that is legally provided to another business entity, without the consent of other persons and users, and 2) maliciously interfering with or disrupting a network, disrupting a product or service that is lawfully provided by others by misleading, deceiving, or forcing users to modify, close, or unload them without express notice and consent of users. In cases where the unfair competition takes place outside of China, but the result of the violation occurs in its territory, the court of the place where the result of the violation occurs in China shall have jurisdiction. This provides Chinese rights holders with favorable opportunities to protect their rights. Draft amendments to the Law on Combating Unfair Competition were considered. It is concluded that the study and application of the experience of China’s regulation of protection against unfair competition will be useful for legislators, administrative and judicial bodies of Ukraine

Legal regulation of surrogacy parentage determination in China.

Unlike natural conception and other assisted reproductive technologies, surrogacy involves three crucial factors: family legislation, family ethics, and reproductive technology. This makes the determination of parentage in surrogacy more complex. In China, surrogacy is completely prohibited by law. However, this prohibition has not diminished the interest in discussions around the family ethics, order, and relationships affected by surrogacy. In practice, disputes over parentage and child custody arising from surrogacy urgently need resolution through judicial practice. The current legal framework in China lacks clear regulations to address the complexities of surrogacy, leading to numerous unresolved disputes. To address this issue, it is advisable for China to enact clear legislative measures to govern parent-child relationships in surrogacy cases. This paper presents legislative recommendations for regulating surrogacy in China, with the hope that the judicial interpretations of the Supreme People's Court of China can provide clear legal regulations on surrogacy during revisions.