The Disciplinary Effects of Non-Debt Liabilities: Evidence from Asbestos Litigation

50 Pages Posted: 17 Mar 2010 Last revised: 14 Jan 2014

Date Written: August 15, 2013

Abstract

I study firms with past asbestos ties that suffer from significant increases in legal liabilities after a U.S. Supreme Court ruling in 1999. This event provides a natural experiment setting to estimate the indirect effects of financial distress on real activities. While direct litigation and bankruptcy costs are significant, value computations and clinical evidence at the operational level show that defendant firms suffer only minor indirect costs of financial distress. Furthermore, these firms actively restructure and refocus on core operations during distress. Overall, my results provide support for potentially significant disciplinary effects of non-debt liabilities.

Keywords: Asbestos; Litigation; Natural experiment; Financial distress; Bankruptcy

JEL Classification: G32, G33

Suggested Citation

Taillard, Jérôme, The Disciplinary Effects of Non-Debt Liabilities: Evidence from Asbestos Litigation (August 15, 2013). Journal of Corporate Finance, Vol. 23, No. December, 2013. Available at SSRN: https://ssrn.com/abstract=1571885 or http://dx.doi.org/10.2139/ssrn.1571885

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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