The primary motivation for this “special type of judicial favouritism” is to protect SOEs and firms located in the provinces in which the courts operate, said Zhang Tianyu, a professor at the School of Accountancy at The Chinese University of Hong Kong Business School.

“Public disclosure of the judicial opinions may raise people’s attention about the firms and prevent government leaders from showing favouritism to them,” Zhang said.

“Our results also show provincial governments are more likely to suppress court disclosures involving SOEs located in their provinces in the year before the promotion of their party secretaries than during other years. This is because they want to avoid any negative information that might pose a risk to their politicians’ chances of career advancement in the government.”

Beijing has continued to intensify the role of its SOEs in the economy despite demands from the United States to stop preferential treatment of such firms and bring transparency standards for listed companies up to global norms.

Last week, China pledged that it would open up its financial sector to more foreign investment in 2020, one year earlier than planned.

“Transparency in autocracies is a double-edged sword,” Zhang added. “While transparency can raise a regime’s legitimacy by building trust and enhancing economic growth, it can also increase public scrutiny and destabilise the autocratic government’s power.”

Disclosing judicial opinions in SOE cases could heighten public attention or scrutiny of the companies involved and might also prevent the government from pressuring the courts to offer lighter penalties, or limit its ability to grant more favours to the companies, Zhang said.

“Firms in cases where the courts choose not to reveal the judicial disclosure have certain advantages over their counterparts – although these advantages are hard to detect under an opaque government,” he added.

The findings also show that SOE disclosure bias is stronger for firms that are ranked among the top 10 per cent of listed firms in each province – either in terms of their total tax contributions or number of employees.

Financial costs for firms featured in judicial disclosures may include an “abnormal” drop in their share prices and difficulty in obtaining equity and debt financing when compared with firms whose litigation cases were not disclosed, according to Zhang.

China is a highly centralised country with a strong bureaucratic government meaning there is no real separation between the judicial, executive and legislative branches of government.

The courts receive dual leadership and supervision from both the higher levels of the judiciary, as well as party committees at the local levels, Zhang said. This means that the goals of the Supreme People’s Court, as a part of the central government, are not always aligned with those of the local governments.

“Chinese courts also lack the authority to compel compliance with the law by institutions of similar or higher rank than them. This leads to frequent intervention into court decisions by other government institutions,” said Zhang.

“This conflict between the two branches of government is particularly acute when economic performance is an important factor in deciding promotion of local-level politicians, including those from the provinces.”