Judicial Efficiency, Contract Enforcement, and Supply Chain Resilience: Evidence From a Natural Policy Experiment

ABSTRACT Intensifying geopolitical frictions and policy uncertainty have heightened firms’ exposure to supply chain disruptions, with material consequences for financial reporting and working‐capital outcomes. We examine whether judicial efficiency—an institutional determinant of contract enforceability—strengthens supply chain resilience. Exploiting a large‐scale court reform pilot that exogenously improved civil trial efficiency across pilot and nonpilot cities, we implement a difference‐in‐differences design using Chinese listed firms from 2015 to 2021. We find that improved judicial efficiency significantly increases firms’ supply chain resilience measured from accounting‐based indicators. Mechanism evidence suggests that the reform (i) accelerates civil case resolution, (ii) induces firms to reallocate sales and procurement toward partners located in more efficient jurisdictions, and (iii) improves supply chain cost allocation consistent with enhanced coordination and recovery capacity. The effect is stronger for firms that heavily rely on relational contracting, are exposed to greater economic policy uncertainty, and are located in regions with low marketization. Our findings highlight how the institutional quality of contract enforcement shapes supply‐chain governance and accounting‐relevant outcomes, with implications for managers and policymakers seeking to enhance resilience beyond physical capacity investments.