The Empirical Case for Specific Performance: Evidence from the Tyson-IBP Litigation

Abstract:     
While contract scholars debate the relative merits of specific performance and damages, few studies assess remedies from an empirical perspective. To gain a sense of how market participants view specific performance, this article examines the stock market response to an unusual specific performance award granted to IBP Inc. in Material Adverse Change ("MAC") clause litigation against Tyson, Inc. The combined value of Tyson and IBP rose after specific performance was granted, implying that specific performance created value. This result contrasts with other papers indirectly showing large decreases in combined market value after damage remedies are awarded. These results suggest that, from a post-breach perspective, the common law's preference for damages may be misplaced. The article identifies a number of settings, such as MAC clause controversies, wherein the use of specific performance rather than damages should be encouraged.

Keywords: Specific Performance, Damages, Event Study, Mergers

JEL Classifications: K12, K22

Working Paper Series