How Much Do Corporate Defendants Really Lose? A New Verdict on the Reputation Loss Induced by Corporate Litigation

51 Pages Posted: 8 Jul 2013 Last revised: 22 Nov 2016

See all articles by Bruce Haslem

Bruce Haslem

Southern Utah University

Irena Hutton

Florida State University - College of Business

Aimee Hoffmann Smith

Bentley University - Department of Finance

Date Written: November 21, 2016

Abstract

Using a comprehensive sample of 83,260 corporate lawsuits filed in U.S. Federal District courts, we extend the results of prior studies investigating market value and reputational losses due to corporate misconduct. This larger sample allows us to examine several alternative explanations for the loss in market value, such as the impact of media coverage, the expectation of procedural expenses and subsequent litigation, and the defendant’s willingness to settle, as well as previously documented factors, such as anticipated penalties and cross-sectional firm characteristics. Our results suggest that, with the exception of securities litigation, this loss in market value can be attributed to these alternative explanations rather than to reputational consequences. We confirm this finding using indirect measures of reputation loss, such as declines in financial performance, changes in the outside directorships held by the defendant firm’s CEO, reductions in institutional ownership, CEO and CFO turnover, and improvements in corporate governance.

Keywords: Corporate Litigation, Reputation Loss, Governance

Suggested Citation

Haslem, Bruce and Hutton, Irena and Smith, Aimee Hoffmann, How Much Do Corporate Defendants Really Lose? A New Verdict on the Reputation Loss Induced by Corporate Litigation (November 21, 2016). Available at SSRN: https://ssrn.com/abstract=2290821 or http://dx.doi.org/10.2139/ssrn.2290821

Bruce Haslem

Southern Utah University ( email )

351 West Center Street
Cedar City, UT 84720
United States

Irena Hutton

Florida State University - College of Business ( email )

821 Academic Way
Tallahassee, FL 32306-1110
United States
850.645.1520 (Phone)

Aimee Hoffmann Smith (Contact Author)

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

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