Business Commons^™

Corporate Litigation And Debt, Matteo P. Arena

Finance Faculty Research and Publications

This study examines the effect of litigation risk and litigation costs on firms’ credit ratings and debt financing. The results show that litigation affects a firm's creditworthiness and debt costs in two stages. Before a lawsuit filing, firms at higher risk of litigation have lower credit ratings, are more likely to be rated speculative grade, pay higher yields on loans and bonds, and are less likely to rely on debt financing. At the time of the lawsuit resolution, settlement costs have an additional effect on firm credit quality. Companies facing larger settlement disbursements in relation to their available cash experience …

A Survey Of Litigation In Corporate Finance, Matteo Arena, Stephen P. Ferris

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to review research on litigation in corporate finance.

Design/methodology/approach

This paper surveys studies on the estimation of litigation risk, litigation costs, stock reaction to lawsuit announcement, and the effect of litigation on corporate financial policies and outcomes.

Findings

The first section presents a survey of studies that estimate litigation risk. The authors then discuss a set of studies that focus on the various costs associated with litigation. The third area of review is about studies which estimate the market reaction to a lawsuit announcement. The next section surveys studies that examine the relation …