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

Stefano Cassella, A. Emanuele Rizzo

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Article number102390
JournalJournal of Corporate Finance
Volume79
DOIs
Publication statusPublished - Apr 2023

Keywords

  • Acquisitions
  • Blockholders
  • Corporate disclosure
  • Corporate valuation
  • Information asymmetries
  • Judicial ideology
  • Law and finance
  • Lawsuits

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