Citation

Prince DW, Rubin PH. Am. Law Econ. Rev. 2002; 4(1): 44-87.

Copyright

(Copyright © 2002, Oxford University Press)

DOI

10.1093/aler/4.1.44

PMID

unavailable

Abstract

We use event study methodology to examine the effects of product liability litigation on firms in the automobile and pharmaceutical industries. We find that the filing of a lawsuit, or news stories that subsequently lead to the filing of a lawsuit, is associated with significant losses in firm value. These losses are approximately equal to the upper bound of the direct loss in value of the firms involved. This means that there may also be some reputation effect from litigation events. We also find that in the automobile industry competitors lose when one firm is sued, but in the pharmaceutical industry a lawsuit against one firm leads to an increase in value of other firms.