CDDRL Working Paper
We examine whether and how political connections influence the use of courts in transitional and authoritarian settings using survey data of over 3,900 private firms in China. Although political connections are normally associated with “using the back door,” we find that politically connected firms are more inclined than unconnected firms to use courts over informal means of dispute resolution. Our finding raises a more challenging question: Are politically connected firms more likely to litigate because of their advantages in “know-how” (knowledge of navigating courts) or “know-who” (political influence over adjudication)? By manipulating regional institutional variance as moderators, we find evidence that political advantage dominates knowledge advantage in linking political connections to the use of courts, implying a relationship of perverse complementarity. This finding suggests that expansion of formal institutions may not necessarily erode informal networks; it is the latter that emboldens market actors to seize the advantage of the legal system.