RIPS: Perverse Complementarity - Political Connections and Use of Courts among Private Firms in China
This article examines whether – and how – political connections influence the use of courts in transitional and authoritarian settings. Political connections are normally associated with “using the back door.” Using survey data of over 3,800 private firms in China, we find, however, that politically connected firms are actually more inclined than unconnected firms to use courts over informal means of dispute resolution. Our finding motivates a more challenging question: Are politically connected firms more likely to litigate because of advantages in “know-how” (knowledge of navigating courts) or “know-who” (political influence over adjudication)? By manipulating regional variance in legal services capacity as a moderator, we find evidence that political advantage dominates knowledge advantage in linking political connections to the use of courts, implying a relationship of perverse complementarity. Contrary to predictions of canonical institutional theories based on Western European historical experience, expansion of formal institutions may not necessarily erode informal networks; rather, it is the latter that emboldens market actors to seize advantage of the legal system.