Can ‘delitigation’ transform an industry?

Abstract

I investigate whether removing product liability – “delitigation” – affects a firm’s market value. This research sheds light on the influence of litigation risk on firm value. Using the vaccine industry as an example, I find the average market return to the licensing of a new vaccine increases after the passage of legislation that removed most product liability for vaccines. While average market return to the licensing of any new drug that a vaccine maker produced also increases, returns to drug firms that do not make vaccines remain the same after the legislation. Company risk-taking enhances market reaction to the announcement of a new vaccine. Delitigation appears to contribute to the transformation of vaccine makers.