Litigation risk: Measurement and impact on M&A transaction terms

Hubert de La Bruslerie and Julien Le Maux

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Abstract: The purpose of the paper is to propose an original proprietary proxy of a firm's litigation risk. We extend the scope of litigation risk outside of the conflicts with shareholders and the domain of security litigation. We demonstrate that the source of the risk of litigation can be found in the firm's policies and in its management's operational or strategic decisions, even if a sector conditioning effect exists. Based on a sample of 465 US M&A transactions between 2000 and 2014, we provide evidence that the level of litigation risk, at the acquirer's level, has a positive and significant impact on the takeover premium. We also provide evidence that a significant relationship exists between the acquirer's litigation risk and the means of payment. An extension of the sample to international transactions is used as a robustness check; it confirms the previous results.

Keywords: acquisition premium; idiosyncratic risk; litigation proxy; litigation risk; means of payment (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

Published in Journal of Business Finance and Accounting, 2018, 45 (7-8), ⟨10.1111/jbfa.12318⟩

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Journal Article: Litigation risk: Measurement and impact on M&A transaction terms (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01944421

DOI: 10.1111/jbfa.12318

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