Do courts matter for Firm Value? Evidence from the U.S. Court System
Journal of Law and Economics,
We estimate how US state courts impact firm value by exploiting a US Supreme Court ruling that exogenously changed firms’ exposure to different courts. We find that increased exposure to more business-friendly courts is associated with positive announcement returns. We find no such association for objective court quality. Consistent with the ruling impacting firm value through the legal environment channel, we find that effects are stronger for firms with high litigation exposure. We find that the ruling led to a shift in both the geographic distribution of lawsuits and operations of firms.
Corporate Misconduct and the Cost of Private Debt: Evidence from China
Comparative Economic Studies,
Using a comprehensive dataset of corporate lawsuits in China, we investigate the implications of corporate misconduct on the cost of private debt. Evidence reveals that firms involved in litigations obtain subsequent loans with stricter pricing terms, 15.1 percent higher loan spreads, than non-litigated borrowers. Strong political connection and repeated relationship help to flatten the sensitivity of loan pricing to litigation. Nonbank financial institutions react in stronger manner to corporate misconduct than traditional banks in pricing loans. Overall, we show that private debt holders care about borrowers’ wrongdoing in the past.