Judicial independence and corporate government subsidy: evidence from provincial court centralization
基于中国2014-2019年司法管理改革，研究发现司法独立通过遏制地方保护主义，显著减少了政府对国有企业的补贴，尤其是地方国企，同时提高了补贴效率和创新产出。
Purpose This study investigates how China's judicial independence reform curbs local protectionism, thereby enhancing the efficiency and rational allocation of governmental resources, particularly among state-owned enterprises (SOEs) and local SOEs. Design/methodology/approach Based on the quasi-natural experiment of China's 2014–2019 judicial management reform, this study employs a difference-in-differences (DID) model to empirically examine the impact of judicial independence on the efficiency of government subsidies. To ensure robustness, a series of validation methods are applied, including alternative sample tests, cross–fixed effects estimation, controlling for confounding events (circuit courts), placebo tests and parallel trend tests. Findings The reform curbs local protectionism and significantly reduces government subsidies to SOEs, especially local SOEs. Three mechanisms explain this outcome: (1) eliminating resource allocation barriers, (2) enhancing resource allocation efficiency and (3) intensifying regulatory scrutiny towards resource allocation. Although R&D subsidies and expenditures declined, innovation outputs increased, indicating improved efficiency of innovation resource allocation. Furthermore, the reform generates positive abnormal stock returns around subsidy announcements, reflecting enhanced investor confidence in judicial impartiality and improved fiscal transparency. Originality/value This study makes three main contributions. First, it integrates judicial independence into the analytical framework of government subsidy allocation, emphasizing institutional quality as a determinant of fiscal efficiency. Second, it reveals a novel mechanism linking judicial reform to corporate innovation through subsidy restructuring, offering new insights into law–finance–innovation interactions. Third, it identifies the market announcement effect of judicial reforms, demonstrating how enhanced judicial impartiality fosters investor confidence and enterprise value.