MNC Litigation Outcomes in Authoritarian Courts

• In Event: Multinational Firms and the Politics of Arbitration

Abstract

The existing literature on political risks often assumes that foreign investors cannot receive fair adjudications of their claims against local actors, especially in authoritarian regimes where judicial independence is lacking. However, more foreign firms choose to settle their disputes locally than to resort to international mechanisms. We construct an original dataset on the litigation outcomes of multinational corporations in Chinese courts, and empirically examine the assumption about the quality of authoritarian courts. We argue that the legal treatments received by foreign firms are affected by their political connections with local actors and the diplomatic relations between the host and home country governments. We find that foreign companies are more likely to win lawsuits when they have better local connections, and during time periods when their home country is in better diplomatic relations with China. Our study has important implications in highlighting the ways authoritarian judicial politics interacts with international political economy.

Authors

• Jian Xu, emory university

• Frederick R. Chen, University of Wisconsin-Madison