Robustness of Judicial Decisions to Valuation-Method Innovation: An Exploratory Empirical Study

Journal of Business, Finance, and Accounting, Forthcoming

35 Pages Posted: 6 Dec 2009 Last revised: 14 Dec 2009

See all articles by Feng Chen

Feng Chen

University of Toronto - Rotman School of Management

Kenton K. Yee

Mellon Capital Management

Yong Keun Yoo

Korea University Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 3, 2009

Abstract

In shareholder litigation, judges and litigants choose from a menu of valuation methods that is evolving over time. What drives demand for new valuation methods? Does valuation method choice affect a judge’s final appraisal? Is a judge more likely to favor the litigant whose valuation method coincides with the judge’s if the other litigant uses a different method? Using a comprehensive hand-collected sample of Delaware appraisal remedy shareholder litigation cases, we show that the distribution of judicial appraisal outcomes is insensitive to valuation methodology. Moreover, valuation method agreement between judge and plaintiff (or between judge and defendant) does not influence the judge’s appraisal. In this sense, judicial valuation is robust to innovations in valuation technology. However, we find that judicial valuation method choice is contextual. The method a judge chooses depends on the fundamental attributes of the firm as well as the quality of litigants’ proposed valuation estimates. We conclude that judges demand new valuation methods when the new methods are contextually more appropriate.

Keywords: judicial valuation, shareholder litigation, law and finance

JEL Classification: G10, G14, G38, K12, K22, K40, K41, M41, N20

Suggested Citation

Chen, Feng and Yee, Kenton K. and Yoo, Yong Keun, Robustness of Judicial Decisions to Valuation-Method Innovation: An Exploratory Empirical Study (December 3, 2009). Journal of Business, Finance, and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1518109

Feng Chen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Kenton K. Yee (Contact Author)

Mellon Capital Management ( email )

50 Fremont Street, #3819
San Francisco, CA 94105
United States
415-975-3565 (Phone)

Yong Keun Yoo

Korea University Business School ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

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