Does appellate precedent matter?

Do courts matter? Scholars are of two minds. Some view courts as critical in being able to effect widespread social change. Others believe momentous judicial decisions may be caused by, rather than be causes of, political or socioeconomic changes. Generally, the empirical evidence is mixed and a heated debate has arisen on the impact of the decisions of the highest courts. ¹ Part of the difficulty in reaching definitive conclusions is that courts make decisions in different ways, depending to some extent on external factors, be they litigant strategy, developments in legal doctrine, or social trends. This chapter examines the stock market response to appellate Federal Communications Commission (FCC) decisions to test whether the market pays attention to the arrival of new legal precedent. We use the random assignment of judges to appellate cases to make the causal inferences that would be difficult in the case of Supreme Court decisions. We focus on the FCC because we can construct a natural control group. FCC decisions pertain to media companies. We can therefore use non-media companies as control. If courts have no effect whatsoever, then we should not see any differential impact on stock markets.