The Role of Corporate Political Connections in Commercial Lawsuits: Evidence From Chinese Courts

• Author: Jian Xu
• Published date: 01 December 2020
• Date: 01 December 2020
• DOI: http://doi.org/10.1177/0010414020919962
• Subject Matter: Articles

https://doi.org/10.1177/0010414020919962

Comparative Political Studies

2020, Vol. 53(14) 2321 –2358

© The Author(s) 2020

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DOI: 10.1177/0010414020919962

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Article

The Role of Corporate

Political Connections in

Commercial Lawsuits:

Evidence From Chinese

Courts

Jian Xu1

Abstract

Like courts in democratic regimes, courts under authoritarianism play an

important role in the regulation of complex economies. In particular, scholars

suggest that authoritarian judiciaries are commonly encouraged to provide

independent adjudication in the context of economic disputes between firms.

Yet because regime insiders are often connected to firms, judges have strong

incentives to consider the political implications of their decisions even in

areas of the law where they are allegedly more independent. In this article, I

propose a new theory about the role of corporations’ political background in

commercial lawsuits. Using a data set on the litigation outcomes of firms in

China, I find that the composition of a firm’s board membership is a significant

predictor of its lawsuit outcomes. A higher percentage of corporate

board members with political connections leads to a higher probability of

lawsuit success. The results point to the limitations of the selective judicial

independence theory.

Keywords

authoritarian judicial politics, political connections, the rule of law, commercial

lawsuits

1Emory University, Atlanta, GA, USA

Corresponding Author:

Jian Xu, Department of Political Science, Emory University, 327 Tarbutton Hall, 1555 Dickey

Drive, Atlanta, GA 30322, USA.

Email: jian.xu2@emory.edu

919962CPSXXX10.1177/0010414020919962Comparative Political StudiesXu

research-article2020

2322 Comparative Political Studies 53(14)

Introduction

Authoritarian regimes have strong incentives to attract domestic and foreign

investments. To do so, they need to promote a sound judicial system, staffed

by professional and independent-minded judges. Yet, authoritarians also have

incentives to promote the interests of regime insiders, such as particular firms

and private individuals, and a judicial system that is aware of these relation-

ships and willing to shape the law so that regime allies are protected is also

desirable.

Thus, existing theories of judicial politics under authoritarianism suggest

that undemocratic regimes seek to develop judicial systems whose judges are

selectively independent. The autocrat wants to establish judicial indepen-

dence in certain areas to attract foreign investment, to boost economic trans-

actions and growth, to manage social discontent, and to monitor lower level

state bureaucrats’ behavior (Moustafa, 2007, 2008; O’Brien et al., 2006;

Peerenboom, 2002). Due to such considerations, the ruler would prefer

judges to exercise independent judicial discretion and rule cases based on the

legal merits of the claims alone. On the contrary, the autocrat wants to main-

tain a tighter control of the court over cases in the political sphere (Cohen,

2006; X. He, 2012b). These cases involve important regime stakeholders or

politically sensitive issues that concern ruling elites’ core interests, and the

authoritarian leadership gives clear directives to the judge regarding how to

handle this type of cases.

Individual judges are responsible for putting this selective independence

regime into practice. Two problems complicate their work, especially in rela-

tively large states. First, large economies generate massive levels of often

highly complex litigation. In the case of China, it may not be obvious which

of the hundreds of thousands of cases handled each year require special atten-

tion and political care. Second, authoritarian regimes are not monolithic.

Research has shown that authoritarian regimes can be very fragmented with

significant principal-agent problems existing between the central authority

and local state functionalities, such as in the case of China (Lieberthal &

Lampton, 1992; Mertha, 2009; Tanner & Green, 2007). Chinese courts and

judges are more than pawns of power-holders and can strategically exploit

the power fragmentation within the party-state to advance institutional and

personal interests.

This article extends our understanding of judicial autonomy in single-

party authoritarian regimes by examining commercial lawsuits in China.

Commercial cases are generally thought of as being less politicized even in

countries that lack judicial independence. But I argue that politics still matter

in commercial litigation and it is not easy for autocrats to instrumentally

Xu 2323

manipulate the judiciary to achieve governance goals. Judges still have strong

incentives to conform to political signals under certain conditions. This is

because of the following two reasons.

First, judges do not always receive clear signals from a single source of

political authority. Commercial lawsuits often involve actors with different

types and depths of political background. Nominally private entities are

sometimes engaged in public–private business partnerships formed through

government procurement contracts or public service outsourcing. Many pri-

vate firms also have state-owned enterprises (SOEs) as minority investors.

When a government administrative or regulatory agency is sued by an SOE,

it is not clear which political direction the judge should pursue. Which domi-

nant political force(s) dictates the outcome of the case depends on the spe-

cific features of the lawsuit, and the judge is not always certain about her

ruling’s political ramifications. The judge is often under pressures from mul-

tiple political actors and special interests at various levels and branches of the

authoritarian regime who have a stake in the lawsuit (Clarke, 2003; Deininger

& Jin, 2009; Guo, 2001; Ng & He, 2017).

Second, judges have both an institutional interest of protecting the court’s

prestige and personal interests of professional fulfillment. Authoritarian judi-

ciaries need to cultivate a certain level of legal credibility and legitimacy in

public eyes (Rajah, 2012; Whiting, 2017). Because the highest court is the

last legal defense against arbitrary or biased rulings at lower level courts (Ip,

2010), higher level judges care more about the reputation of the judiciary as

an impartial venue for dispute resolution (T. Zhang, 2012). If the top court

cannot adequately correct lower courts’ misjudgments, it may undermine

popular trust in the legal order and lead to political instability. Therefore, top

courts have greater institutional responsibility to ensure that the general pub-

lic still have some degree of faith in resolving their disputes through institu-

tional channels instead of frequently resorting to extralegal violence or street

protests. Judges at higher levels are thus expected to be more impartial in

adjudicating cases. In contrast, lower level judges have stronger career

advancement incentives to win favor with their political patrons and are thus

more easily swayed by political signals. As part of their performance evalua-

tion requirements, judges are incentivized to carry out their judicial duties

effectively and efficiently, which requires sufficient support from other gov-

ernment bodies. A judge facing greater resource constraints, which is com-

mon at lower level courts, is therefore more attentive to the political needs of

other state actors whose cooperation is vital for court functions. In short,

judges driven more by self-interested career motivations are more susceptible

to litigants’ underlying political power.