The Value of Judicial Independence: Evidence from Eighteenth Century England
University of Southern California Law School
University of Virginia School of Law
Send correspondence to: Paul G. Mahoney, University of Virginia School of Law, 580 Massie Rd., Charlottesville, VA 22903; E-mail: pmahoney{at}virginia.edu.
This article assesses the impact of changes in judicial independence on equity markets. North and Weingast (1989) argue that judicial independence and other institutional changes inaugurated by the Glorious Revolution of 1688–89 improved public and private finance in England by putting restraints on the government. We calculate abnormal equity returns at critical points in the passage of statutes giving judges greater security of tenure and higher salaries. Early-eighteenth-century legislation granting tenure during good behavior is associated with large and statistically significant positive abnormal returns. Other statutes had positive but generally insignificant effects.