PDF iconDownload This Paper
Open PDF in Browser
Add Paper to My Library
Permalink
Using the URL or DOI link below will ensure access to this page indefinitely
Copy URL
Copy URL

Corporate Investment Under the Cloud of Litigation

Fisher College of Business Working Paper No. 2018-03-18

Charles A. Dice Center Working Paper No. 2018-18

60 Pages Posted: 11 Sep 2018

See all articles by Benjamin Bennett

Benjamin Bennett

Tulane University - A.B. Freeman School of Business

Todd T. Milbourn

Washington University in Saint Louis - Olin Business School

Zexi Wang

Lancaster University

Date Written: September 11, 2018

Abstract

We study the effect of legal risk on firms’ investment. Using legal risk measures based on the number of litigious words in SEC 10-K filings, we find legal risk reduces investment. Underlying mechanisms include both i) a financing channel, whereby legal risk reduces credit ratings, increases bank loan costs, and decreases borrowing, and ii) an attention channel, whereby legal risk consumes top-management’s attention. Accordingly, we find legal risk has negative effects on firms’ investment efficiency and stock performance. We address endogeneity concerns through a DiD analysis utilizing staggered adoptions of universal demand laws across states.

Keywords: Legal risk, Investment, SEC 10-K filing

JEL Classification: G30, G31, K20

Suggested Citation

Bennett, Benjamin and Milbourn, Todd T. and Wang, Zexi, Corporate Investment Under the Cloud of Litigation (September 11, 2018). Fisher College of Business Working Paper No. 2018-03-18. Available at SSRN: https://ssrn.com/abstract=3247688 or http://dx.doi.org/10.2139/ssrn.3247688

Benjamin Bennett (Contact Author)

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

HOME PAGE: https://sites.google.com/site/benjaminbennettfinance/home

Todd T. Milbourn

Washington University in Saint Louis - Olin Business School ( email )

1 Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6392 (Phone)
314-935-6359 (Fax)

HOME PAGE: http://www.olin.wustl.edu/faculty/milbourn/

Zexi Wang

Lancaster University ( email )

Lancaster University Management School
Bailrigg
Lancaster, LA1 4YX
United Kingdom

PDF iconDownload This Paper
Open PDF in Browser

Register to save articles to
your library

Register

Paper statistics

Downloads
112
Abstract Views
755
rank
250,875
PlumX Metrics

Related eJournals