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Research Seminar with Raffaele Conti
October 30, 2015 @ 12:00 pm - 1:15 pm
SUPER PARTES? ASSESSING THE EFFECT OF JUDICIAL INDEPENDENCE ON ENTREPRENEURSHIP
Abstract: We study whether changes in judicial selection methods promoting judges’ independence from incumbent businesses promotes entrepreneurship. In particular, we exploit exogenous longitudinal variations in the judicial selection system in U.S. states between 1977 and 2011. We show that the transition to a judicial election system that makes judges less lenient towards the influence of established businesses induces more entry, in particular in states where financial constraints for starting a business are less binding and where there exist more entrepreneurial opportunities. Furthermore, the increase in judicial independence is accompanied by a lower likelihood of an incumbent business to win disputes against individuals (including unsatisfied customers or former employees starting a new business).We also find that the increase in entry is paralleled by an increase in exit, in particular of older firms, suggesting a Schumpeterian process of creative destruction is taking place. At the same time, established firms that survive react by switching efforts from lobbying activities – whose returns decrease when it is more difficult to establish political connections with judges – to restructuring and innovation – which become crucial for addressing the increasing competition by new entrants. Overall, these findings imply that the way in which judges are selected can have a profound impact on economic activities.
Bio in brief: Raffaele Conti is assistant professor of strategy at the Catolica Lisbon School of Business and Economics, Universidade Católica Portuguesa. He received a a Ph.D. in Management from Bocconi University. His research interests include the organization of R&D activity, the impact of uncertainty on firm decisions and performance, and the relationship between government regulation and firm strategy. He is member of the Research Committee of the Business Policy and Strategy (BPS) Division of the Academy of Management (2013-2015), and sits on the editorial board of European Management Journal and Strategic Management Journal.