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Abstract(s)
Some U.S. states allow judges to be elected and even to belong to parties. In this study, we examine how firm performance is influenced by exogenous changes that make the judicial system more independent. We exploit two types of changes: (i) from partisan to non-partisan elections and (ii) from non-partisan to appointed judges. These variations across states in the U.S. court system take place between 1976 and 2012. We find a positive effect of judicial independence on firm profitability of around 4 percentage points, suggesting that judicial independence increases market discipline and promotes an environment in which firm survival has to rely on performance, rather than on power or political connections.