42 Pages Posted: 29 Jun 2017 Last revised: 21 Sep 2017
Date Written: June 28, 2017
We document strong evidence that firms systematically increase specialized, locally targeted advertising following the firm being taken to trial in a given location - precisely following initiation of the suit. In particular, we use all legal actions brought against publicly traded firms over the 20 year sample period that progress to trial from 1994-2014. In terms of magnitude, the increase is sizable: targeted local advertising increases by 23% (t=8.63) following the suit. Moreover, firms concentrate these strategic increases in locations where the return on their advertising dollars are largest: in smaller, more concentrated advertising markets where fewer competitor firms are advertising. They focus their advertisement spikes specifically toward jury trials, and in fact specifically toward the most likely jury pool. Lastly, we find that the prevalence and intensity of this behavior is increasing over time.
Keywords: Litigation, Advertising, Verdict, Jury Influence, Corporate Response
JEL Classification: K10, K41, K42
Suggested Citation: Suggested Citation
Cohen, Lauren and Gurun, Umit G., Buying the Verdict (June 28, 2017). Available at SSRN: https://ssrn.com/abstract=2994572