Abstract

https://ssrn.com/abstract=1381829
 
 

References (67)



 
 

Citations (12)



 


 



Growing Out of Trouble? Corporate Responses to Liability Risk


Todd A. Gormley


Washington University in St. Louis

David A. Matsa


Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

December 30, 2010

Review of Financial Studies, 2011, 24(8), pp. 2781-2821.
2009 Western Finance Association Conference Paper

Abstract:     
This paper analyzes corporate responses to the liability risk arising from its workers’ exposure to newly identified carcinogens. We find that firms, especially those with weak balance sheets, tend to respond to such risks by acquiring large, unrelated businesses with relatively high operating cash flows. The diversifying growth appears to be primarily motivated by managers’ personal exposure to their firms’ risk in that the growth has negative announcement returns and is related to firms’ external governance, managerial stockholdings, and institutional ownership. The results suggest corporate governance is particularly important when firms are exposed to the risk of large, adverse shocks.

Number of Pages in PDF File: 65

Keywords: legal liability, acquisitions, payout policy, capital structure, managerial agency

JEL Classification: D21, G32, G34, K13


Open PDF in Browser Download This Paper

Date posted: April 16, 2009 ; Last revised: June 17, 2014

Suggested Citation

Gormley, Todd A. and Matsa, David A., Growing Out of Trouble? Corporate Responses to Liability Risk (December 30, 2010). Review of Financial Studies, 2011, 24(8), pp. 2781-2821.; 2009 Western Finance Association Conference Paper. Available at SSRN: https://ssrn.com/abstract=1381829

Contact Information

Todd A. Gormley (Contact Author)
Washington University in St. Louis ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
(314) 935-7171 (Phone)
HOME PAGE: http://www.gormley.info
David A. Matsa
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 3,225
Downloads: 707
Download Rank: 26,249
References:  67
Citations:  12