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The disciplinary effects of non-debt liabilities: Evidence from asbestos litigation

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  • Taillard, Jérôme P.

Abstract

I study firms with past asbestos ties that suffer from significant increases in legal liabilities after a U.S. Supreme Court ruling in 1999. This event provides a natural experiment setting to estimate the indirect effects of financial distress on real activities. While direct litigation and bankruptcy costs are significant, value computations and clinical evidence at the operational level show that defendant firms suffer only minor indirect costs of financial distress. Furthermore, these firms actively restructure and refocus on core operations during distress. Overall, my results provide support for potentially significant disciplinary effects of non-debt liabilities.

Suggested Citation

  • Taillard, Jérôme P., 2013. "The disciplinary effects of non-debt liabilities: Evidence from asbestos litigation," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 267-293.
  • Handle: RePEc:eee:corfin:v:23:y:2013:i:c:p:267-293 DOI: 10.1016/j.jcorpfin.2013.08.005
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    References listed on IDEAS

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    Keywords

    Asbestos; Litigation; Natural experiment; Financial distress; Bankruptcy;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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