The Shareholder Wealth Effects of Delaware Litigation

摘要

We collect data on the record of every action in hundreds of derivative cases and merger class actions involving public companies filed in the Delaware Court of Chancery from 2004 to 2011. We use these data to analyze how markets respond to litigation in the most important court for corporate disputes in the United States. The detail in the dataset allows us to explore how case characteristics such as the timing of the filing, the presence of certain procedural motions, litigation intensity, and the judge assigned to the case relate to firm value. Unlike previous studies, we document that negative abnormal returns are associated with the filing of derivative cases, and we show that this association is particularly strong for cases that are first filed in Delaware and are not related to a previously disclosed government investigation. We also develop some evidence that market participants can anticipate litigation intensity and respond by valuing the firm equity less and that markets associate cases with pension fund plaintiffs with better outcomes than cases without this institutional involvement. Finally, we find little evidence of abnormal returns associated with judicial assignment at the time of filing for derivative cases, but we do observe an association between judicial assignment and case filing for merger cases.