Research On The Microeconomic Consequences Of The Reform Of Judicial Financial Managemen

Institutional environment forms the basis for the survival and development of enterprises,and existing literature finds that a good institutional environment has an extensive role in promoting economic growth and enterprise development.What’s more,the report of the 20 th CPC National Congress also points out that it is necessary to "improve property rights protection,market access,fair competition,social credit and other basic systems of the market economy,and optimize the business environment".The legal environment constitutes an important part of the institutional environment,and in the entire legal system,in addition to the legislative activities of the legislature and the government’s law enforcement activities,the efficient and orderly operation of the legal system also depends on the operation of the judiciary.The report of the 20 th CPC National Congress proposes to deepen the comprehensive reform of the judicial system and accelerate the construction of an efficient,fair and authoritative socialist judicial system.In line with this requirement,in order to improve the operational effectiveness of the judiciary,the central government has organized a nationwide reform of the unified management of the judiciary’s finances at the provincial level.Using this reform scenario,this paper first examines its role in enhancing judicial effectiveness from the perspective of improving judicial efficiency and curbing judicial local protectionism.Then,using the quasi-natural experimental scenario provided by this reform,the paper examines the microeconomic consequences of the reform from the perspective of the relationship between firms and the credit and product markets,based on the direct effects of the reform to enhance judicial effectiveness.First of all,this paper examines the impact of the reform of the unified provincial management of the judiciary’s finances on regional judicial effectiveness.Under the pre-reform financial management system,the judiciary was mainly financed by the same-level financial ministry,which resulted in a strong dependence of the judiciary on the local government and gave rise to judicial local protectionism through local government intervention in court decisions.At the same time,local governments have limited financial resources,and the judiciary may not be a priority for local governments,which leads to insufficient funding for the judiciary,and they have to cut costs in order to maintain normal operation,which impairs judicial efficiency.After the reform of the unified management of the judiciary’s finances at the provincial level,the judiciary’s funding is provided by the provincial treasury,which basically cuts off the connection between the judiciary and the local government in terms of funding and enhances the independence of the judiciary.Therefore,this paper finds that the reform of the unified management of the judiciary’s finances reduces the tendency of judicial local protectionism.At the same time,the provincial government is often financially strong,which means the judicial organs can be more adequately funded after the reform.Therefore,the empirical results of this paper show that the judicial efficiency of the region is improved after the reform.Second,on the basis of the finding that the reform of the unified provincial management of the judiciary’s finances enhances judicial effectiveness,this paper examines the impact of the reform on enterprise economic activities from the perspective of the relationship between enterprises and the credit and product markets,based on the mechanism of the reform’s role in alleviating enterprise financing constraints and promoting regional market entry.Specifically,this paper investigates the impact of the reform on the level of local enterprise investment,the intensity of enterprise R&D investment and the probability of corporate misconduct.In addition,the corresponding heterogeneity analysis and mechanism tests are conducted.The findings of the study mainly include the following three aspects:First,the impact of the reform of the unified provincial management of the judiciary’s finances on the level of corporate investment.Theoretically,the improvement of judicial efficiency and the alleviation of judicial local protectionism brought about by the reform can promote enterprise investment by alleviating the financing constraints faced by enterprises in the credit market and improving the level of competition faced by enterprises in the product market.The results of the empirical tests show that the reform significantly improves the investment level of local enterprises.The results of the heterogeneity analysis show that the promotion effect of the reform on enterprise investment is more pronounced in regions where the reform is strong,among private enterprises,and among small and medium-sized enterprises.The results of the mechanism test indicate that the effect of the reform on raising the level of enterprise investment is more pronounced in enterprises with a higher degree of financing constraints and in regions with a greater increase in the level of market entry,suggesting that alleviating financing constraints and promoting regional market entry and raising the level of regional market competition are the mechanisms by which the reform promotes the level of enterprise investment.Second,the impact of the reform of the unified provincial management of the judiciary’s finances on the intensity of local enterprises’ R&D investment.Theoretically,after the reform of the unified management of the judiciary’s finances at the provincial level,judicial efficiency is improved and the tendency of judicial local protectionism is suppressed,which can alleviate the financing constraints faced by enterprises in the credit market and improve the level of market competition faced by enterprises in the product market,therefore increasing the R&D investment intensity of local enterprises.The results of the empirical tests show that the intensity of R&D investment of local enterprises significantly increases after the reform,and this enhancement effect is more significant in the regions with strong reform,among private enterprises,small and medium-sized enterprises,and enterprises in high-tech industries.The results of the mechanism test indicate that the effect of the reform to enhance the R&D investment intensity of enterprises is more pronounced in enterprises with a higher degree of financing constraints and in regions with a greater increase in the level of market entry,suggesting that the reform promotes the R&D investment intensity of enterprises by alleviating their financing constraints and promoting regional market entry and enhancing the level of regional market competition.Third,the impact of the reform of the unified provincial management of the judiciary’s finances on the probability of misconduct by local enterprises.Theoretically,the improvement of judicial efficiency and the alleviation of judicial local protectionism brought about by the reform can curb firms’ violations by alleviating the financing constraints faced by firms in the credit market and improving the level of market competition faced by firms in the product market.The empirical test finds that the probability of misconduct by local firms decreases significantly after the reform.The results of cross-sectional analysis show that the inhibitory effect of the reform on corporate violations is more significant in regions with strong reforms,among private firms,small and medium-sized firms,and firms with low levels of external monitoring.The results of the mechanism test indicate that the reform plays a more significant role in suppressing corporate violations among enterprises with higher levels of financing constraints,suggesting that alleviating financing constraints is the mechanism through which the reform inhibits corporate violations.This paper has important theoretical value.First,as the key component of management power,the power over finance is of equal importance as the power over personnel.However,compared to the allocation of personnel power,there is scant literature documenting the economic consequences of the allocation of financial power over judicial organs.This paper uses the setting of the change in the allocation of financial power over judicial organs and investigates its microeconomic consequences,thereby expanding the research on the management system of the judicial organs.Secondly,the existing literature on "law and finance" lacks a discussion of the judicial system,and the scant literature on the relation between judiciary and enterprise behavior mainly discusses from the perspective of property rights protection.In this paper,we use the phased reform of the judiciary as a quasi-natural experiment to examine its microeconomic consequences from the perspective of the relationship between enterprises and the market,thus adding to the literature of "law and finance" form a different perspective.Finally,this paper studies the impact of the unified management reform of judiciary funding on corporate investment,corporate research and development expenditure and corporate misconduct,thereby contributing to the literature on the determinants of corporate investment,corporate research and development expenditure and corporate misconduct from the perspective of the enhancement of institutional environment following the better functioning of judicial system after the reform.This paper also has important practical significance.In order to improve operational quality of the judiciary and provide high-efficiency judicial supply for civil parties,the central government has promoted a series of judicial reforms,of which the provincial-level unified management reform of the finances of judicial organs is an important part.However,the discussion of this reform is concentrated mainly in theoretical analysis,and there’s scant systematic empirical evidence.This paper empirically examines the direct effect and the economic consequences of this reform,and finds that the reform has produced beneficial effects,which are the improvement of corporate investment level,the promotion of corporate research and development expenditure and the inhibition of corporate misconduct.This provides empirical support for summarizing the results of the reform,analyzing the reform experience and promoting further implementation of the reform,which helps to fully deepen the reform of the judicial system and further improve the quality and efficiency of the judiciary’s operations.Meanwhile,in the context of promoting high-quality economic development and enhancing the quality of listed companies,the findings of this paper also enlighten the relevant departments to further optimize the institutional environment in order to expand the effective investment of enterprises,promote enterprise R&D activities and prompt enterprises to operate in accordance with the law,so as to provide a more solid institutional guarantee for promoting high-quality economic development and enhancing the quality of listed companies.