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Litigation risk: Measurement and impact on M&A transaction terms

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  • Hubert de La Bruslerie
  • Julien Le Maux

Abstract

The purpose of the paper is to propose an original proprietary proxy of a firm's litigation risk. We extend the scope of litigation risk outside of the conflicts with shareholders and the domain of security litigation. We demonstrate that the source of the risk of litigation can be found in the firm's policies and in its management's operational or strategic decisions, even if a sector conditioning effect exists. Based on a sample of 465 US M&A transactions between 2000 and 2014, we provide evidence that the level of litigation risk, at the acquirer's level, has a positive and significant impact on the takeover premium. We also provide evidence that a significant relationship exists between the acquirer's litigation risk and the means of payment. An extension of the sample to international transactions is used as a robustness check; it confirms the previous results.

Suggested Citation

  • Hubert de La Bruslerie & Julien Le Maux, 2018. "Litigation risk: Measurement and impact on M&A transaction terms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 45(7-8), pages 952-996, July.
    • Handle: RePEc:bla:jbfnac:v:45:y:2018:i:7-8:p:952-996
    DOI: 10.1111/jbfa.12318
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    Cited by:

    1. Enrico Forti & Serena Morricone & Federico Munari, 2021. "Litigation risks and firms innovation dynamics after the IPO," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(2), pages 291-313, June.

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