Work

Justice’s financial footprint: Judicial independence and the cost of debt

Year: 2025

Type: article

Abstract: Exploiting the quasi-natural experiment of establishing district courts in China, we find that the enhanced judicial independence that has followed the circuit court reform significantly reduces the cost of debt financing. The reduction is driven by the alleviation of local protectionism and enhanced judicial efficiency, both of which strengthen the credibility and enforceability of contracts. The impact is more pronounced for firms that have non-political executives, high default and litigation risks, and weak market power. Further analyses reveal increased loan supply and improved credit quality for financially constrained firms post-reform, contributing to regional economic growth. This research enriches the discourse on judicial independence and financial development by demonstrating the pathways through which legal reforms enhance the accessibility and cost-effectiveness of external finance in emerging markets. JEL: H11, H25, H30

Source: Australian Journal of Management

DOI: 10.1177/03128962241312718

Authors: Zhiwu Chen, Yan Chen, Yan Han, Meiting Lu, Yaowen Shan

Institutions: University of Technology Sydney, Guangdong University of Foreign Studies, Beijing Institute of Technology, Macquarie University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: green

OpenAlex ID: W4409128681

FWCI: 2.69

Cites: 88

Cited by: 1

Related to: 10