Competition and the Reputational Costs of Litigation

92 Pages Posted: 11 Dec 2020 Last revised: 21 Nov 2022

See all articles by Felix von Meyerinck

Felix von Meyerinck

University of Zurich - Department of Finance

Vesa Pursiainen

University of St. Gallen; Swiss Finance Institute

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance; University of St. Gallen - School of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Date Written: September 06, 2024

Abstract

We study the role of competition in customers' reactions to litigation against firms, using anonymized mobile phone location data. A class action lawsuit filing is followed by a 4% average reduction in customer visits to target firms' outlets in the following months. The effect strongly depends on competition. Outlets facing more competition experience significantly larger negative effects. Closer competition matters more, both in terms of geographic and industry proximity. Announcement returns and quarterly accounting revenues around lawsuit filings also strongly depend on competition. Our results suggest that competition is an important component in customers' ability to discipline firms for misbehavior.

Keywords: JEL classification: D12, D43, G14, G30, K42 class action lawsuits, corporate misbehavior, competition, reputational costs

JEL Classification: D12, D43, G14, G30, K42

Suggested Citation

von Meyerinck, Felix and Pursiainen, Vesa and Schmid, Markus, Competition and the Reputational Costs of Litigation (September 06, 2024). University of St.Gallen, School of Finance Research Paper No. 2020/07 , Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3744414 or http://dx.doi.org/10.2139/ssrn.3744414

Felix Von Meyerinck

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Vesa Pursiainen (Contact Author)

University of St. Gallen ( email )

Swiss Institute of Banking and Finance
Unterer Graben 21
St.Gallen, 9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Markus Schmid

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Unterer Graben 21
St. Gallen, 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Swiss Finance Institute

c/o University of St. Gallen
Dufourstrassse 50
St. Gallen, SG 9000
Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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