Mind the Contagion, Your Honour

52 Pages Posted: 12 Jun 2020 Last revised: 24 Nov 2020

See all articles by Naman Nishesh

Naman Nishesh

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Krishnamurthy Subramanian

Indian School of Business (ISB), Hyderabad

Prasanna L. Tantri

Indian School of Business

Meghana Yerabati

Indian School of Business (ISB), Hyderabad

Date Written: May 1, 2020

Abstract

Although court judgments on economic issues are frequent, their impact remains understudied. Unlike laws, studied extensively by law and finance literature, they are not publicly debated, not passed by legislators, and do not always factor in economic implications. Studying an unexpected verdict of the Indian Supreme Court that retrospectively canceled the allocation of coal blocks, we find evidence of contagion through what we call a litigation channel: firms unconnected with the judgment but facing litigation experience a credit supply shock and a decline in investments. The shock is distinct from the known bank lending channel and has significant macro-economic consequences.

Keywords: Litigation Risk, Bank lending channel, Contagion, Firm Performance

JEL Classification: G21,L25, K00

Suggested Citation

Nishesh, Naman and Subramanian, Krishnamurthy and Tantri, Prasanna L. and Yerabati, Meghana, Mind the Contagion, Your Honour (May 1, 2020). Indian School of Business, Available at SSRN: https://ssrn.com/abstract=3603441 or http://dx.doi.org/10.2139/ssrn.3603441

Naman Nishesh

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

McColl Building
South Campus, UNC
Chapel Hill, NC NC 27599-3490
United States

HOME PAGE: http://https://www.kenan-flagler.unc.edu/

Krishnamurthy Subramanian

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Prasanna L. Tantri

Indian School of Business ( email )

Hyderabad, Gachibowli 500 032
India
9160099959 (Phone)

Meghana Yerabati (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

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