Thriving in the Midst of Financial Distress? An Analysis of Firms Exposed to Asbestos Litigation

Fisher College of Business Working Paper No. 2008-03-11

Charles A. Dice Center Working Paper No. 2008-12

63 Pages Posted: 24 Jul 2008 Last revised: 27 Sep 2010

Date Written: July 1, 2008

Abstract

I analyze a comprehensive sample of 270 defendant firms exposed to an unexpected wave of asbestos litigation in the wake of U.S. Supreme Court decisions in Amchem (1997) and Ortiz (1999). Due to insurance coverage and the strategic use of Chapter 11, most firms in the sample have manageable cash outflows and do not suffer materially from the litigation. Because of the long delay between exposure to asbestos and its related illnesses, the subset of firms with substantial legal cash outflows and liabilities provide a natural experiment to study financial distress unrelated to economic distress. When analyzing these firms throughout the distress period, I find little evidence of indirect costs of financial distress. Furthermore, I find empirical support for a significant disciplinary effect of financial distress as these firms actively restructure and refocus on core operations.

Keywords: asbestos litigation, exogenous shock, indirect costs of distress, Chapter 11

JEL Classification: G32, G33

Suggested Citation

Taillard, Jérôme, Thriving in the Midst of Financial Distress? An Analysis of Firms Exposed to Asbestos Litigation (July 1, 2008). Fisher College of Business Working Paper No. 2008-03-11; Charles A. Dice Center Working Paper No. 2008-12. Available at SSRN: https://ssrn.com/abstract=1160319 or http://dx.doi.org/10.2139/ssrn.1160319

Jérôme Taillard (Contact Author)

Babson College ( email )

323 Tomasso Hall
Babson Park, MA 02457
United States
6145994184 (Phone)

HOME PAGE: http://https://www.babson.edu/academics/faculty/faculty-profiles/jerome-taillard.php

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