UCL School of Management is delighted to welcome Raffaele Conti, Catolica Lisbon, to host a research seminar discussing ‘Super partes? Assessing the effect of judicial independence on entry.’
The concept of entry barriers has a rich and profound heritage in both the entrepreneurship and the strategy literature, which have increasingly recognized the importance of the institutional environment for weakening or reinforcing entry barriers. In this paper, we consider one specific dimension of the institutional environment, judicial independence, that is, the extent to which judges are insulated by the possible influence of businesses. Indeed, incumbent firms might be able to establish and leverage connections with the judiciary, for example by contributing to judges’ electoral campaigns. As such, they can enjoy an advantage in courts and create entry barriers by lowering their costs vis-à-vis those of new entrants. Accordingly, a change in the institutional environment insulating judges from the possible influence of incumbents (i.e., an increase in judicial independence) enhances entrepreneurship. Our empirical findings support this prediction. We show this result is robust to a number of specifications and we also shed light on the mechanisms behind this effect. Finally, we show that as judicial independence increases the economy becomes more competitive as incumbents lose their judicial advantage, and thus their market power, vis-à-vis small entrepreneurial firms.