Business Courts and Firm Performance

Abstract

Does it matter for firm performance whether corporations have access to high-quality courts for litigating their internal affairs? To shed some light on this question, this paper focuses on the creation of business courts in various states between 1992 and 2015. Employing a difference-in-difference approach, I find that the creation of business courts is associated with a 3.2 to 3.7 percentage point increase in firm performance as measured by return on assets. Moreover, corporations with access to business courts have a 0.5 percentage point higher likelihood of being the target in a completed merger with positive abnormal returns for the target’s shareholders. These results are both economically and statistically significant.