The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation
AbstractThis paper uses data on the abnormal returns earned by the shareholders of Texaco and Pennzoil to examine whether resources were "lost" in the course of the litigation. We find that the leakage involved in the forced transfer is enormous: each dollar of value lost by Texaco's shareholders has been matched by only about 30 cents gain to the owners of Pennzoil. Our estimates suggest that the Texaco-Pennzoil conflict has reduced the combined equity value of the two companies by about $2 billion. Further losses have been suffered by Texaco's bondholders, though these may be offset by the tax collections that would result if Texaco made a large payment to Pennzoil.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2418.
Date of creation: Jul 1989
Date of revision:
Publication status: published as Rand Journal of Economics, Vol. 19, No. 2, pp. 157-172, (Summer 1988).
Note: ME PE
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Other versions of this item:
- David M. Cutler & Lawrence H. Summers, 1988. "The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 157-172, Summer.
- Summers, Lawrence H. & Cutler, David, 1988. "The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation," Scholarly Articles 2689179, Harvard University Department of Economics.
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