Management and Market Reactions to Litigation: Do Shareholders Win When the Company Loses?

Lau, Terence J.
May 2006
Academy of Management Perspectives;May2006, Vol. 20 Issue 2, p72
Academic Journal
The article discusses a study which examined the impact of litigation on the company's management and stock market performance. The author assumes that the more a manager stands to lose in litigation, the harsher the market reaction to a settlement announcement. The author investigates whether there is a relationship between the existence of information a manager wants to keep private and the speed at which settlement is reached following litigation. The study found a significant negative reaction to the settlement announcement of litigation. The author also found that firms that chose settlement continued to under-perform in the market for up to one year following settlement. He also found that the average market reaction to a judgment was positive.


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