Judicial independence and corporate innovation: Evidence from China's unified management of local courts reform

This study examines how judicial independence influences corporate innovation, using the staggered implementation of China's unified management of local courts (UMLC) reform as a natural experiment. Employing data from Chinese listed companies between 2008 and 2020, we find that the UMLC significantly boosts corporate innovation and patent citation by 7.358% and 0.803%. This positive relationship is primarily driven by reduced local judicial protectionism, improved access to external financing, and enhanced corporate governance. Our results further reveal that the innovation-enhancing effects of judicial reform are stronger in areas with high political intervention, weaker institutional environments, and among firms without political connections. This research highlights the crucial role of judicial independence in fostering corporate innovation, providing policymakers with valuable insights into the benefits of judicial reforms in emerging markets.