Abstract We document that judges’ political affiliations are strongly associated with the level of judicial penalties levied against companies. For example, Republican-appointed judges impose larger fines for hiring illegal immigrants, while Democrat-appointed judges impose larger fines for pollution- and environment-related violations. Time-series variation suggests that political partisanship, not fixed ideological differences, drives these findings. The differences become amplified when higher-court judicial vacancies exist and in the months before national elections. Our findings highlight the importance of political polarization for U.S. companies and illustrate how judicial composition can affect firms’ incentive to avoid violating laws connected to partisan issues. (JEL G38, K14, K42)
Gormley et al. (Thu,) studied this question.