Major government customers and corporate court outcomes: Evidence from China

Abstract

We examine the role of firms' major government customers on the outcomes of their court cases using data about commercial lawsuits of Chinese firms. We find that firms with major government customers are associated with a higher winning rate in lawsuits. The association is more pronounced when major government customers have greater political influence, economic stakes and procurement budgets, and for firms that contribute more to the local economy. Moreover, the association is more pronounced when judgments are vulnerable to government intervention, such as non-contractual cases, cases involving small amounts, judges have a higher promotion pressure, and lawsuits are judged in regions with a worse legal environment. Finally, media attention, regulatory oversight, and reputational concerns of institutional investors and other stakeholders can constrain the judicial advantage of these firms. Overall, our findings highlight the role of supply chain connections with governments in shaping judicial outcomes and raise important questions about the integrity of legal processes in politicized business environments.