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Litigation risk and financial leverage

Author

Listed:
  • James Malm

    () (College of Charleston)

  • Marcin Krolikowski

    () (Providence College)

Abstract

Abstract In this paper, we use a unique hand-collected dataset on corporate litigation to examine the relationship between litigation risk and financial leverage. We find that an increase in litigation risk is associated with a significant decrease in total debt. Partitioning total debt into long-term debt and short-term debt, we find a negative relationship between litigation risk and long-term debt. There is no significant relationship between litigation risk and short-term debt.

Suggested Citation

  • James Malm & Marcin Krolikowski, 2017. "Litigation risk and financial leverage," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 180-194, January.
  • Handle: RePEc:spr:jecfin:v:41:y:2017:i:1:d:10.1007_s12197-015-9348-0
    DOI: 10.1007/s12197-015-9348-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Litigation risk; Financial leverage; Debt maturity;

    JEL classification:

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

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