Making the news: Heterogeneous media coverage and corporate litigation

Abstract

Research summary: This study explores how relative prominence shapes rivalry between firms. Corporate litigation, an increasingly costly domain of interfirm rivalry, is threatening not just because of the immediate legal stakes but because of the indirect losses that unwanted negative publicity inflicts on defendants. I argue that potential defendants' incentives to avoid such losses create a source of value that firms can capture by agreeing to forgo litigation. The more prominent a firm is relative to rivals, the greater its threat and the more value it stands to capture from potential targets by sparing them from litigation.Managerial summary: The power to attract media attention can be valuable to firms beyond its role in managing relations with investors or the public. It can also provide leverage against industry rivals. Being sued by a prominent firm carries the threat of potential damaging publicity, especially for lesser‐known rivals. Firms may be able to leverage this threat to elicit concessions in return for sparing rivals from litigation. Prominent firms stand to benefit not just from eliciting concessions from rivals but from the ability to do so while avoiding costly litigation. Data from the semiconductor industry show that firms that command much higher levels of media coverage than rivals are able to avoid litigation more often than firms with comparable or lower levels of media coverage. Copyright © 2015 John Wiley & Sons, Ltd.