Abstract

http://ssrn.com/abstract=227112
 
 

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The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation


David M. Cutler


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Lawrence H. Summers


Harvard University; National Bureau of Economic Research (NBER)

October 1987

NBER Working Paper No. w2418

Abstract:     
This 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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Date posted: July 6, 2004  

Suggested Citation

Cutler, David M. and Summers, Lawrence H., The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation (October 1987). NBER Working Paper No. w2418. Available at SSRN: http://ssrn.com/abstract=227112

Contact Information

David M. Cutler (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center, Room 315A
Cambridge, MA 02138
United States
617-496-5216 (Phone)
617-495-8570 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-868-3900 (Phone)
617-868-2742 (Fax)
Lawrence H. Summers
Harvard University ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
617-495-1502 (Phone)
617-495-8550 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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