This study explores the effects of judicial independence on corporate innovation by analyzing the staggered establishment of Circuit Courts in China. We find that introducing Circuit Courts increases corporate innovation, particularly for central state-owned enterprises and private firms. Channel analysis shows that Circuit Courts significantly reduce local judicial protectionism, ease financial constraints, and improve corporate governance, which stimulates innovation. The positive effects of Circuit Courts are more pronounced in cities facing severe political intervention, regions with weak legal environments, and private firms without political or banking connections. Our results are robust to endogeneity concerns, alternative measures and specification models. Overall, this study supports the theoretical arguments that institutions matter and that improvements in judicial quality boost firms' incentives to innovate.

Using the geographic location data of 218,554 commercial bank branches in China, we find that an increasing number of bank branches in the vicinity of enterprises, namely bank competition, leads to higher corporate employment, particularly for non-SOEs and SOEs with less government influence. Channel analyses reveal that better access to banking facilitates information extraction and eases credit constraints for surrounding firms, which thus increases labor investment. In addition, fintech development moderates the positive effect of bank competition on corporate employment. An exogenous policy shock as well as two instrumental variables, are used to correct for endogeneity and our results remain consistent. The findings are also robust to alternative samples, proxies, and different fixed effects. Further analyses show that bank competition improves firms’ labor investment efficiency and upgrades their employment structures. Lastly, increased employment improves the firm performance of non-SOEs.