Cross-Regional Judicial Reform, a Unified National Market, and Cross-Regional Capital Flows

【Authors】

HAN Xianfeng, ZHENG Zhuoji & ZHAO Renjie

【WorkUnit】

HAN Xianfeng（Kunming University of Science and Technology, 650500）;ZHENG Zhuoji（Xiamen University, 361005）;ZHAO Renjie（Northwestern University, 710127）

【Abstract】

The smooth flow of capital is crucial for high-quality economic development, and a fair rule of law is indispensable for achieving this goal. As an important judicial innovation, the establishment of cross-administrative-division courts aims to address the “home and away” phenomenon in cross-regional cases, thereby fostering a favorable legal environment for the free flow of capital through fair and efficient adjudication of cross-regional and sensitive cases. Utilizing the quasi-natural experiment of China’s cross-administrative-division court reforms, this study selects the data of China’s A-share companies and their subsidiaries from 2010 to 2021 as the research sample and explores the impact of cross-regional judicial reform on the cross-regional flow of corporate capital and its potential mechanisms, for the first time.
The study finds that cross-regional judicial reform significantly promotes the cross-regional flow of corporate capital. Mechanism tests show that the reform mainly promotes the formation of a unified national capital market by facilitating the flow of capital through signaling effects, market competition effects, and cost-saving effects, indirectly supporting the cross-regional flow of corporate capital. Further analysis shows that the reform not only facilitates capital flows from developed to less-developed regions but also promotes bidirectional capital flows within jurisdictions. The positive impact of the reform exhibits an “increasing-then-decreasing” pattern as the geographic distance grows, peaking at an optimal range of 200-400 km. The effects are more pronounced in private enterprises, labor-intensive industries, and provincial border areas. This study unveils a new perspective on the relationship between “law and capital” and provides empirical evidence for deepening judicial reforms and building a unified national capital market.
This study makes several key contributions to the existing literature. First, it deepens the academic understanding of how legal frameworks influence cross-regional capital flows. Second, for the first time, this study systematically incorporates the cross-administrative-division courts—a significant judicial innovation—into the economic research paradigm. Third, it profoundly reveals the micro-level mechanisms through which judicial system innovations contribute to the formation of a unified capital market.

JEL: K20, G31

【KeyWords】

Cross-Regional Judicial Reform, Cross-regional Flow of Corporate Capital, Unified National Market