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Litigation risk: Measurement and impact on M&A transaction terms
Author(s) -
La Bruslerie Hubert,
Le Maux Julien
Publication year - 2018
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12318
Subject(s) - shareholder , business , database transaction , actuarial science , proxy (statistics) , litigation risk analysis , payment , sample (material) , scope (computer science) , robustness (evolution) , accounting , risk management , finance , corporate governance , computer science , biochemistry , chemistry , audit , chromatography , machine learning , gene , programming language
Abstract The purpose of the paper is to propose an original proprietary proxy of a firm's litigation risk. We extend the scope of litigation risk outside of the conflicts with shareholders and the domain of security litigation. We demonstrate that the source of the risk of litigation can be found in the firm's policies and in its management's operational or strategic decisions, even if a sector conditioning effect exists. Based on a sample of 465 US M&A transactions between 2000 and 2014, we provide evidence that the level of litigation risk, at the acquirer's level, has a positive and significant impact on the takeover premium. We also provide evidence that a significant relationship exists between the acquirer's litigation risk and the means of payment. An extension of the sample to international transactions is used as a robustness check; it confirms the previous results.