A Survey of Litigation in Corporate Finance

Abstract

Purpose – The purpose of this paper is to review research on litigation in corporate finance.

Design/methodology/approach – This paper surveys studies on the estimation of litigation risk, litigation costs, stock reaction to lawsuit announcement, and the effect of litigation on corporate financial policies and outcomes.

Findings – The first section presents a survey of studies that estimate litigation risk. We then discuss a set of studies that focus on the various costs associated with litigation. The third area of review is about studies which estimate the market reaction to a lawsuit announcement. The next section surveys studies that examine the relation between litigation and a variety of corporate policies, behaviors, and outcomes. We then discuss the emerging literature on how corporate political connections can influence the outcome of litigation. The survey concludes with a brief summary and a discussion of suggestions for future research involving corporate litigation.

Originality/value – By providing an extensive review of the literature on litigation in corporate finance, this survey can help researchers to identify recent trends in litigation research and select promising new avenues of investigation in the field.

Keywords: Litigation, Corporate Finance