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Defendant Firms and Response to Legal Crises: Effect on Shareholder Value
Author(s) -
Jang WoanYuh,
Chen ChienTzung
Publication year - 2009
Publication title -
journal of contingencies and crisis management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.007
H-Index - 51
eISSN - 1468-5973
pISSN - 0966-0879
DOI - 10.1111/j.1468-5973.2009.00570.x
Subject(s) - crisis response , corporate governance , shareholder , valuation (finance) , business , shareholder value , market value , enterprise value , value (mathematics) , financial crisis , accounting , market economy , law and economics , economics , finance , political science , public relations , macroeconomics , machine learning , computer science
This paper examines links between institutional responses to legal crises and shareholder valuation. It explores whether the defendant firm's market performance upon the announcement of a filing varies according to the crisis response strategies applied. It also investigates the relationship between the legal issue and the type of crisis response strategy. It examines whether the type of legal issue affects the relationship between the use of crisis response strategies and the firm's performance upon the announcement of a filing. The findings indicate that using nonexistence and distance strategies instead of no response may mitigate negative market response. However, when firms face corporate governance suits, whether or not they implemented crisis response strategies has a significantly negative impact on firm value.