Law, Economics, and Judicial Systems
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Abstract
Abstract
This study examines how a rule-of-law-based business environment affects corporate investment efficiency using 42,672 firm-year observations in China from 2009 to 2024. The results show that improvements in the regional legal environment significantly reduce corporate investment inefficiency. Mechanism analysis indicates that a stronger legal environment lowers both the probability of corporate litigation and the associated litigation burden, thereby releasing financial resources, reducing managerial distraction, and mitigating financing and operating uncertainty. Further analysis shows that the legal environment both constrains overinvestment and alleviates underinvestment. The effect is more pronounced among private firms, financially constrained firms, and firms operating in litigation-intensive industries.
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@article{Liang2026Rule,
title = {Rule-of-Law-Based Business Environment, Corporate Litigation Risk, and Investment Efficiency},
author = {Wensheng Liang and Xinyu Sui},
journal = {Emerging Markets Finance and Trade},
year = {2026},
doi = {10.1080/1540496x.2026.2735322},
url = {https://doi.org/10.1080/1540496x.2026.2735322}
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