Cronies in the courtroom: Political interference and judicial reforms

Utilizing 1.54 million judicial judgments from enterprise-to-enterprise litigation between 2014 and 2019 in China, we provide evidence of municipal leaders exerting influence over the courts to favor enterprises connected to them. By leveraging variations in enterprise connections resulting from official turnover, we show that enterprises with connections to party leaders have higher chances of winning in business litigation than unconnected enterprises. We also examine the impact of the staggered roll-out of circuit courts, a top-down institutional reform, on cronyism in the courtroom. Our findings show that this reform has effectively reduced the judicial advantage enjoyed by connected enterprises by two-thirds. By contrast, the trial live-broadcasting reform increases visibility but is not associated with a reduction in the effect of political connections, suggesting that different forms of judicial bias require different monitoring approaches. • Large-scale evidence of courtroom cronyism is provided using 1.54 million enterprise-to-enterprise civil judgments in China from 2014–2019. • Turnover-driven changes in political connections use leadership transitions to create shifts in whether a firm is connected to incumbent municipal officials. • Who matters in the Party-state hierarchy is revealed by stronger favoritism linked to Party secretaries and judicial secretaries than to mayors. • Circuit courts curb favoritism by introducing top-down oversight that substantially reduces the litigation advantage of politically connected firms. • Transparency alone is insufficient because live trial broadcasting increases visibility but does not meaningfully weaken connection-based favoritism.