Who Acquires Toxic Targets?

33 Pages Posted: 8 Nov 2018

See all articles by Chelsea Liu

Chelsea Liu

University of Adelaide - Business School

Alfred Yawson

University of Adelaide; Financial Research Network (FIRN)

Date Written: December 2018

Abstract

We examine the consequences of environmental lawsuits in the market for corporate control. Using a sample of lawsuits filed in the U.S. federal courts, we document that environmental litigation reduces sued firms’ bidding activities during the subsequent three years. Purchasing targets that have been sued for environmental violations is value destroying for acquirers, as evidenced by their announcement‐date returns. Finally, firms with poor corporate governance are more likely to acquire such “toxic” targets. Our empirical results are robust to falsification tests using securities and contractual lawsuits, controlling for endogeneity using an instrumental variable approach, propensity score matching, employing an alternative lawsuit sample, and alternative control variables and model specifications. Our findings have significant implications for policymakers, corporate executives, and environmental interest groups.

Suggested Citation

Liu, Chelsea and Yawson, Alfred, Who Acquires Toxic Targets? (December 2018). Journal of Empirical Legal Studies, Vol. 15, Issue 4, pp. 842-874, 2018, Available at SSRN: https://ssrn.com/abstract=3279641 or http://dx.doi.org/10.1111/jels.12195

Chelsea Liu (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
University of Adelaide, South Australia 5005
Australia

Alfred Yawson

University of Adelaide ( email )

No 233 North Terrace
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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