Do Courts Matter for Firm Value? Evidence from the U.S. Court System

60 Pages Posted: 5 Nov 2015 Last revised: 24 Jul 2018

See all articles by Stefano Colonnello

Stefano Colonnello

University of Magdeburg; Halle Institute for Economic Research

Christoph Herpfer

Emory University - Goizueta Business School

Date Written: May 25, 2018

Abstract

We estimate the impact of U.S. state court characteristics on firm value by exploiting a U.S. Supreme Court ruling that exogenously changed firms' exposure to different courts. We find that increased exposure to more business-friendly courts is associated with positive announcement returns. We find no such association for objective court quality. We confirm that this U.S. Supreme Court ruling impacted firm value through the legal environment channel. We show that this ruling reduced the ability of affected firms to remove cases from certain state courts, and we show that announcement returns are stronger for firms that have high litigation exposure.

Keywords: Courts, Litigation, Governance

JEL Classification: G32, G34, G38, K40

Suggested Citation

Colonnello, Stefano and Herpfer, Christoph, Do Courts Matter for Firm Value? Evidence from the U.S. Court System (May 25, 2018). Paris December 2016 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2686621 or http://dx.doi.org/10.2139/ssrn.2686621

Stefano Colonnello (Contact Author)

University of Magdeburg

Universitaetsplatz 2
PSF 4120
Magdeburg, D-39106
Germany

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Christoph Herpfer

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

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