Suing the leviathan: The effect of trans-regional jurisdiction reform on corporate investment

We study how the Trans-Regional Jurisdiction reform (TRJ) affects corporate investment. The reform moves administrative lawsuits to courts outside the defendant government's home jurisdiction, which limits local government influence over the courts. We use a stacked difference-in-differences design that draws on the staggered rollout of the reform across cities. We find that the reform raises corporate investment by about 28.7 percent of the sample mean. Complementary evidence shows that the reform improves court outcomes for firms, has stronger effects where pre-reform trust in local institutions is higher, and is associated with lower institutional transaction costs and financing constraints. The effect is larger for firms with more irreversible investment, lower state ownership, and better access to finance. The reform also leads firms to acquire more land and take on more risk, although part of the higher investment appears as overinvestment. These results show how a focused judicial reform can change firm behavior where legal institutions are weak.