The equity value implications of court ideology: Evidence from federal judge turnover

Stefano Cassella and A. Emanuele Rizzo

Journal of Corporate Finance, 2023, vol. 79, issue C

Abstract: We use exogenous variation in federal courts' composition, for instance due to a judge's death, as a quasi-natural experiment to study the equity value implications of court ideology. This design allows us to establish that firms experience an equity value loss when federal court ideology shifts in favor of plaintiffs and against corporations. The value loss stems from: (i) an increase in the expected costs of litigation; (ii) the deterioration of market-based governance mechanisms; (iii) and a perverse managerial incentive to decrease corporate disclosure in a heightened litigation environment.

Keywords: Lawsuits; Corporate valuation; Judicial ideology; Corporate disclosure; Information asymmetries; Blockholders; Acquisitions; Law and finance (search for similar items in EconPapers)
JEL-codes: G32 G34 G38 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:79:y:2023:i:c:s0929119923000391

DOI: 10.1016/j.jcorpfin.2023.102390

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