Regional judicial capacity and corporate total factor productivity: Evidence from the establishment of circuit courts

Abstract

The strategic importance of total factor productivity (TFP) in the high-quality development phase of enterprises is increasingly prominent, and understanding the impact of regional judicial capacity on corporate TFP is crucial. We treat the establishment of Circuit Courts as a quasi-natural experiment for regional judicial capacity and construct the staggered difference-in-differences model to examine how regional judicial capacity affects corporate TFP. We find that the establishment of Circuit Courts significantly enhances corporate TFP. Mechanism tests show that the establishment of Circuit Courts improves the macro-level market competition environment, legal environment, and contractual environment, enhances micro-level resource allocation efficiency, strengthens innovation capacity, reduces bribery expenses, eases financing constraints, and promotes specialized division of labor, thereby improving corporate TFP. The positive effects of Circuit Courts are more pronounced among firms in regions with higher levels of local protection and administrative intervention, lower levels of intellectual property judicial protection, weaker product market competition intensity, and among non-state-owned enterprises without political connections. Our results remain robust after a series of robustness and endogenous tests. Overall, this study not only reveals the important role of judicial capacity enhancement on enterprise development, but also provides evidence support for deepening the reform of the judicial system and improving the Circuit Courts system.