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

Cassella,Stefano
; 
Rizzo,A. Emanuele
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.
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2023-04
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Tilburg University Research Output Collection
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Keywords
Acquisitions, Blockholders, Corporate disclosure, Corporate valuation, Information asymmetries, Judicial ideology, Law and finance, Lawsuits, SDG 10 - Reduced Inequalities
Citation
Cassella, S & Rizzo, A E 2023, 'The equity value implications of court ideology : Evidence from federal judge turnover', Journal of Corporate Finance, vol. 79, 102390. https://doi.org/10.1016/j.jcorpfin.2023.102390
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https://hdl.handle.net/20.500.14602/105470
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info:eu-repo/semantics/openAccess
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