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Litigation risk and corporate performance

Author

Listed:
  • Malm, James
  • Soyeh, Kenneth W.
  • Kanuri, Srinidhi

Abstract

Sued firms are susceptible to external financing constraints, diversion of top management’s time, harmful reputational costs, higher legal fees, and loss of customers and suppliers, which can impact their performance. Using a unique hand-collected dataset on corporate lawsuits, we examine the relationship between litigation risk and operating performance. We find that firms involved in a lawsuit have lower operating performance as measured by the return on assets (ROA) and equity (ROE). Our results remain qualitatively similar to several robustness tests.

Suggested Citation

  • Malm, James & Soyeh, Kenneth W. & Kanuri, Srinidhi, 2023. "Litigation risk and corporate performance," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    • Handle: RePEc:eee:beexfi:v:37:y:2023:i:c:s2214635022000594
    DOI: 10.1016/j.jbef.2022.100725
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    More about this item

    Keywords

    Litigation risk; Corporate performance;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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