Managerial Opportunism During Corporate Litigation

44 Pages Posted: 1 Oct 2003 Last revised: 20 Jun 2008

See all articles by Bruce Haslem

Bruce Haslem

Southern Utah University - Department of Economics and Finance

Abstract

Using a large sample of litigation events involving publicly listed defendants, we document a surprising fact. The resolution of litigation through a court's decision dominates settlement of litigation from the shareholders point of view; even when the firm loses. We develop a model using agency costs within the firm to explain why the market views settlement as a negative outcome on average, and find empirical evidence supporting the implications of the model. Specifically, firms with weak corporate governance settle litigation more quickly, and the market reacts more negatively to settlements involving firms with higher agency costs.

JEL Classification: D8, G3, K1, K4

Suggested Citation

Haslem, Bruce, Managerial Opportunism During Corporate Litigation. FSU College of Law, Law, Business & Economics Paper No. #, Available at SSRN: https://ssrn.com/abstract=442060 or http://dx.doi.org/10.2139/ssrn.442060

Bruce Haslem (Contact Author)

Southern Utah University - Department of Economics and Finance ( email )

Cedar City, UT 84720
United States

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