The Effects of Product Liability Litigation on the Value of Firms

David W. Prince and Paul Rubin

American Law and Economics Review, 2002, vol. 4, issue 1, 44-87

Abstract: We use event study methodology to examine the effects of product liability litigation on firms in the automobile and pharmaceutical industries. We find that the filing of a lawsuit, or news stories that subsequently lead to the filing of a lawsuit, is associated with significant losses in firm value. These losses are approximately equal to the upper bound of the direct loss in value of the firms involved. This means that there may also be some reputation effect from litigation events. We also find that in the automobile industry competitors lose when one firm is sued, but in the pharmaceutical industry a lawsuit against one firm leads to an increase in value of other firms. Copyright 2002, Oxford University Press.

Date: 2002
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