Judicial Ideology and Business Dynamics

Using staggered changes in U.S. circuit court ideology, we examine the effect of judicial ideology on U.S. business dynamics. We find evidence that shifts toward more liberal courts, which are commonly viewed as less pro-business, lead to immediate increases in economic turnover that persist for decades. Changes toward more liberal courts lead to more new establishments and business startups, but also more exits. On net, liberal courts lead to establishment growth and shift the composition of firms toward younger businesses and industries exposed to lower litigation, intellectual property, and labor risks.