Fundamental to the notion of a fair trial and the rule of law is the principle that a judge shall apply the law impartially and free from the influence of any personal biases. When real or perceived conflicts of interest emerge, judges are expected to recuse themselves. Despite such an expectation, however, recent Wall Street Journal reporting revealed many cases where judges violated U.S. law and judicial ethics (28 U.S.C. Section 455) by overseeing cases that involve companies in which they or their family-owned stock. Unsurprisingly, several of the cases with conflicts have been appealed.
While Chief Justice John Roberts downplayed the significance of the Wall Street Journal reporting, characterizing the judges' failures to recuse as "isolated violations" and "unintentional oversights," empirical explorations of the potential influence of judges' financial holdings on case outcomes remain rare. To address this scholarly gap, a recent paper, Judge Financial Holdings and Case Outcomes: Evidence from Judge Financial Disclosures, examines whether there is a relation between the financial holdings of judges and the outcomes of the trials over which they preside.
To construct the judges' investment data set, Harit (Univ. Texas-Dallas—mgmt.) et al. extracted judge financial disclosure data from the Free Law Project website. Their sample includes 33,726 annual disclosure reports involving 3,250 federal judges from 2000 to 2020. The authors lever the random assignment of cases to judges and examine whether a judge's rulings are related to his or her stock ownership in one or more of the parties in the case. The paper finds robust evidence that judges rule more favorably and take longer when deciding over conflicted cases as compared to unconflicted ones. It also notes that investors are positively surprised by these outcomes. The abstract follows.
"This paper examines the association between a judge's financial holdings and the outcome of legal cases. Using novel data on financial disclosures of judges and the civil case information of public firms across district courts in the United States between 2000 and 2021, we document multiple instances in which judges fail to recuse themselves in cases where they hold common stock. We find robust evidence that judges rule more favorably and take longer when deciding over conflicted cases as compared to unconflicted ones. We also find that investors are positively surprised by these outcomes, as reflected by stock returns to trial outcomes. Collectively, our results provide the first large-scale evidence of the relation between judges' financial holdings and case outcomes."
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