The Role of Aviation Laws and Legal Liability in Aviation Disasters: A Financial Market Perspective

45 Pages Posted: 4 Jul 2013 Last revised: 13 Jun 2014

Thomas John Walker

Concordia University, Quebec - Department of Finance

Marcus Glenn Walker

Fin-Consult

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business; University of Exeter Business School - Department of Finance

Kuntara Pukthuanthong

University of Missouri, Columbia

Date Written: July 3, 2013

Abstract

Legal liability claims against airlines and airplane manufacturers following an aviation disaster are determined through a myriad of international treaties, intercarrier agreements, and federal and state laws. Which law applies in a specific situation depends on various circumstances surrounding the accident. As a result, pecuniary and non-pecuniary damage awards for the families of the accident victims may vary substantially from case to case. Our study examines how aviation disasters affect the short and long-term performance of U.S. airlines and U.S. airplane manufacturers and explores the factors that drive the performance differences. While prior research has largely focused on brand name effects and rising insurance premiums as possible determinants of stock price losses, our results suggest that the regulatory environment that applies to a given aviation accident has a significant impact on how the market reacts to its announcement. Ceteris paribus, we find that accidents that are governed by state laws which place no limit on damage claims entail particularly large stock price declines. Accidents for which federal laws or international treaties restrict claimable damages, on the other hand, are associated with smaller stock price drops.

Keywords: Aviation Law, Information and Market Efficiency, Event Studies

JEL Classification: G14, L93

Suggested Citation

Walker, Thomas John and Walker, Marcus Glenn and Thiengtham, Dolruedee and Pukthuanthong, Kuntara, The Role of Aviation Laws and Legal Liability in Aviation Disasters: A Financial Market Perspective (July 3, 2013). International Review of Law and Economics, March 2014 Volume 37, Pages 51–65. Available at SSRN: https://ssrn.com/abstract=2289168

Thomas John Walker (Contact Author)

Concordia University, Quebec - Department of Finance ( email )

Montreal, Quebec H3G 1M8
Canada

Marcus Glenn Walker

Fin-Consult

Griesheim
Germany

Dolruedee Thiengtham

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

University of Exeter Business School - Department of Finance

Streatham Court
Exeter, EX4 4PU
United Kingdom

Kuntara Pukthuanthong

University of Missouri, Columbia ( email )

Robert J. Trulaske, Sr. College of Business
403 Cornell Hall
Columbia, MO 65211
United States
6198076124 (Phone)

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