Threat Of Litigation Research Articles

Does Shareholder Litigation Risk Cause Public Firms to Delist? Evidence From Securities Class Action Lawsuits

This paper examines whether shareholder litigation contributes to the decline in U.S. stock market listings. We find that higher litigation risk induces firms to delist. We establish causality by exploiting a 1999 decision by the Ninth Circuit Court that reduced litigation risk. The effect is at least partially driven by the indirect costs of litigation, and that being private can significantly dampen the threat of litigation. Our results show that a balance between protecting shareholder rights and preventing excessive litigation costs can influence a firm’s decision of whether to remain public.

Perianesthesia Nursing Malpractice: Reducing the Risk of Litigation

Nursing malpractice claims are escalating, which equates to a higher risk of being named in a lawsuit and possibly defending one's actions in court. The perianesthesia nurse is at particular risk because of patient involvement before, during, and after surgical procedures. To minimize this risk nurses should have a clear understanding of how a malpractice claim proceeds and the common incidents involved. Three perianesthesia case studies are presented that identify potential nursing litigation threats and strategies to reduce those threats.

Prostate cancer litigation in the NHS

The threat of medical litigation continues to grow; however, within services for prostate cancer there have been no studies quantifying this observation. In this paper the authors looked at the past 12 years of both successful and unsuccessful claims for compensation, with the aim of identifying the reasons for litigation and highlight any areas that could be addressed by the urological community.

Do Securities Class Actions Deter Misreporting?

ABSTRACTThis paper investigates whether a U.S. circuit court ruling that made it easier for public corporations to defend against security class actions led to more misreporting. In a difference‐in‐differences framework, I find an increase in restatements for firms affected by the ruling relative to unaffected firms. Furthermore, within affected firms, these results are concentrated among those that experienced the lowest abnormal returns in response to the ruling, the firms most likely to face meritorious litigation, and among those firms that saw decreases (increases) in dedicated (transient) institutional ownership after the ruling. Inferences are similar examining cross‐sectional tests in a levels framework. These results suggest that the threat of shareholder litigation can discipline managerial reporting practices and deter misreporting. As such, this evidence informs the debate about the role of securities class actions in regulating securities markets.

"The Right-to-Education Responsibilities of Book Publishing Companies"

The responsibilities of copyright owners, specifically book publishers, should be construed from a human rights perspective. Building on the work of John Ruggie and his ‘Guiding Principles on Business and Human Rights,’ this paper contends that book publishers have a responsibility to respect human rights including the right to education. As it relates to copyright law, respecting the right to education entails respecting the measures that countries have incorporated into their national copyright laws to facilitate access to learning materials. Furthermore, corporate actors that own copyright in learning materials should not use litigation or the threat of litigation to try to prevent teachers and students from relying on limitations and exceptions to copyright to gain access to learning materials.

Patent Protection and Threat of Litigation in Oligopoly

In recent years, the increasing awarding of patents has captured the attention of scholars operating in different fields. The economic literature has studied the causes of this proliferation; we propose an entry game focusing on one of the consequences, showing how an incumbent may create a patent portfolio in order to control market entry and to collude. The incumbent fixes the level of patent protection and the threat of denunciation reduces the entrants expected profits; moreover, if the entrant deviates from collusion, the incumbent can strengthen punishment suing the competitor for patent infringement, reducing her incentive to deviate. Our analysis suggests that antitrust authorities should pay attention to the level of patent protection implemented by the incumbent and note whether the holder of a patent reacts to entry by either suing or not suing the competitor. In the model, we use completely general functional forms in analyzing the issues, and this allows us to obtain general results not depending on the assumptions about the kind of oligopolistic competition.

Shareholder Litigation and the Information Environment

Reducing the threat of shareholder litigation through securities class actions lowers voluntary disclosure quantity, but not the accuracy of earnings forecasts. Conversely, reducing the threat of shareholder litigation through derivative lawsuits prompts increases in voluntary disclosure quantity and decreases in both earnings forecast accuracy and mandatory disclosure quality. We reconcile these differences by showing that changes to firm operations are the economic mechanism driving changes in corporate information environments after the threat of derivative lawsuits exogenously declines. This evidence comports with the fact that, while securities class action lawsuits address disclosure decisions, derivative litigation also covers decisions about real operations.

The Impact of Shareholder Litigation Risk on Equity Incentives: Evidence from a Natural Experiment

While prior studies generally support that equity-based compensation induces CEOs to manipulate financial reporting, there is little direct empirical evidence on how concerns regarding financial misreporting affect compensation design. Exploiting the exogenous reduction in litigation threat brought about by a 1999 ruling of the U.S. Ninth Circuit Court of Appeals, we examine how the weakened litigation environment affected CEOs’ compensation design. Consistent with the theoretical prediction that concerns regarding misreporting prevent companies from providing more powerful incentive pay that is otherwise optimal, we find that firms headquartered in Ninth Circuit Court states decreased CEOs’ equity portfolio vega after the ruling. We also show that the reduction was more pronounced for firms with higher litigation risk and for firms with lower institutional ownership.

Commentary on ‘Communicating Messages About Drinking’: Using the ‘Big Legal Guns’ to Block Alcohol Health Warning Labels

Like the tobacco industry, the alcohol industry, with the support of governments in alcohol exporting nations, is looking to international trade and investment law as a means to oppose health warning labels on alcohol. The threat of such litigation, let alone its commencement, has the potential to deter all but the most resolute governments from implementing health warning labeling.

Directors' and Officers' Legal Liability Insurance and Internal Control Weaknesses

ABSTRACTDirectors' and officers' (D&O) legal liability insurance releases directors and officers from the threat of litigation and personal liability stemming from their decisions on behalf of the corporation. While researchers have examined some of the determinants of internal control weaknesses, it is not clear whether excess D&O coverage motivates managers to weaken the quality of firms' internal controls. This study examines whether excess D&O coverage affects the effectiveness of internal controls. Based on a sample of Taiwanese listed firms for the period 2008 to 2012, we find that firms with excess D&O coverage exhibit a greater likelihood of internal control weaknesses. This finding is driven primarily by company-level weaknesses rather than by account-level weaknesses. Because the disclosure of D&O insurance may convey additional information about managers' actions, our findings have implications for other emerging markets.

Optimal Cross-Licensing Arrangements: Collusion Versus Entry Deterrence

This paper analyzes optimal cross-licensing arrangements between incumbent firms in the presence of potential entrants. The optimal cross-licensing royalty rate trades off incentives to sustain a collusive outcome vis-a-vis incentives to deter entry with the threat of patent litigation. We show that a positive cross-licensing royalty rate, which would otherwise relax competition and sustain a collusive outcome, dulls incentives to litigate against entrants. Our analysis can shed light on the puzzling practice of royalty free cross-licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry-deterrence mechanism.

Sovereign Defaults in Court

For centuries, defaulting governments were immune from legal action by foreign creditors. This paper shows that this is no longer the case. Building a dataset covering four decades, we find that creditor lawsuits have become an increasingly common feature of sovereign debt markets. The legal developments have strengthened the hands of creditors and raised the cost of default for debtors. We show that legal disputes in the US and the UK disrupt government access to international capital markets, as foreign courts can impose a financial embargo on sovereigns. The findings are consistent with theoretical models with creditor sanctions and suggest that sovereign debt is becoming more enforceable. We discuss how the threat of litigation affects debt management, government willingness to pay, and the resolution of debt crises.

Patent privateering, litigation, and R&D incentives

AbstractWe model “patent privateering”—whereby producing firms sell patents to Patent Assertion Entities (PAEs), which then license them under the threat of litigation—in a bargaining game. PAEs can negotiate higher licensing fees than producing firms because they cannot be countersued for infringement. Privateering produces two countervailing effects: it increases the offensive value of patents, whereas it decreases their defensive value and lowers the aggregate surplus of producing firms. Embedding the bargaining game into a Research and Development (R&D) contest for multiple complementary technologies, we find that privateering may increase R&D investments, even as it induces more litigation threats and reduces industry profits.

U.S. Supreme Court Amicus Brief of Professor D. Theodore Rave in Support of Appellees, Gill v. Whitford, No. 16-1161

As this Court, the Framers, and foundational political theory have recognized, elected officials, such as legislators, are fiduciaries who have a duty to loyally serve the interests of the people they represent, not their own interests. This commitment to fiduciary government is embedded deep in the constitutional structure. When fiduciaries act in the face of a conflict of interest—like by drawing the electoral districts in which they will run for reelection—they bear the burden of showing that their actions are fair and in the best interest of those they represent. Appellants did not meet that burden here. As the district court found, Appellants acted with the intent to entrench themselves, benefit their political allies, and frustrate potential challengers when they drew electoral districts for the Wisconsin legislature. And the maps they drew had that effect. As Appellees and their amici have shown, the Wisconsin legislature acted unconstitutionally in gerrymandering its own districts. In Vieth v. Jubelirer, 541 U.S. 267 (2004), several members of this Court raised legitimate concerns about whether the federal courts are well suited to police such an inherently political process. But reaffirming the justiciability of political gerrymandering claims and affirming the district court in this case will not inevitably involve the federal courts in supervising every redistricting decision. The purpose of this brief is to explain how the Court can create incentives for state legislatures to adopt independent redistricting processes to which the federal courts can safely defer. Courts are no better at reviewing business judgments than political ones. But when faced with the analogous problem of self-dealing directors in corporate law, courts do not just throw up their hands and declare the whole matter nonjusticiable. Instead, corporate law creates a two-track system of judicial review. Decisions made by conflicted fiduciaries are subjected to exacting scrutiny, but corporate law creates a safe harbor for decisions made or ratified through independent processes. When conflicted directors run their decisions through an independent process, the taint of self-dealing is cleansed, and reviewing courts can safely defer to the substantive outcome so long as they ensure that the process was independent. Finding an unconstitutional political gerrymander in this case will not plunge the federal courts into the political thicket if this Court creates a safe harbor for redistricting decisions made through independent processes, like the independent redistricting commissions in Arizona and California. Instead, the threat of litigation and skeptical judicial review of districts drawn by conflicted state legislatures will create a powerful incentive for those legislatures to adopt independent processes to engage in the complex and delicate task of redistricting without the overwhelming temptation to manipulate district lines to their own advantage. Courts can safely defer to the substantive redistricting decisions of these institutions and confine their review to ensuring that the process was fair and independent—a task for which courts are well suited.

Is “Delitigation” Associated with a Change in Product Safety? The Case of Vaccines

This study investigates whether the threat of litigation induces firms to provide safer products in a regulated industry. I analyze whether removing litigation risk or “delitigation” of product liability is associated with a change in the safety of vaccines. Using U.S. nationwide and state-level data, I find that vaccines that were licensed after legislation that preempted most product liability lawsuits are associated with a significantly higher incidence of adverse events than were vaccines that were licensed under a previous regime that permitted consumers to sue. Oaxaca decomposition suggests that the difference is due to the policy change. The results suggest that product safety deteriorates when consumers are no longer able to sue manufacturers.

The Interplay between Financial Reporting Biases and Audit Quality

We show that a firm's optimal financial reporting bias and an auditor's choice of audit effort are inextricably intertwined. Aggressive or conservative accounting practices influence the auditor's optimal choice of audit effort, and the auditor's incentive and ability to detect misstatements in turn influence the firm's optimal accounting bias. Due to this interplay, a shift to more aggressive accounting can reduce, rather than increase, the incidence of overstatements and hence overinvestment and investor litigation. While ex ante litigation risk is typically considered to be a major driver of conservative accounting practices in corporations, we derive conditions under which a heightened threat of litigation can encourage more aggressive accounting.

The shift in framing of food and beverage product reformulation in the United States from 1980 to 2015

Food and beverage product reformulation is a public health nutrition policy of recent prominence; it is a so-called ‘win-win’ policy, as unlike other nutrition policies, it has the potential to also benefit the food and beverage industry. However, reformulation has also been criticized as being driven by industry interests. In order to inform future policy debates about reformulation, we sought to investigate how and why reformulation became a public health initiative by conducting a framing analysis on 278 US newspaper articles from 1980 to 2015. Frames are aspects of text emphasizing a particular definition of a problem or solution, and they help shape policy discourses and the public policy agenda. Three primary frames of reformulation were identified: business, health, and political. Having multiple frames enables reformulation to assume different meanings in different contexts, which helps to explain how it has garnered broad support from multiple sectors. The political frame of reformulation, however, only grew in importance after 2001, to describe reformulations occurring in response to public health policy initiatives aimed at obesity and noncommunicable diseases. The increasing use of a political frame, and the events described in the articles, suggests that voluntary reformulation followed a growing threat of policy change and litigation facing the industry, a finding that provides important context to debates about voluntary reformulation initiatives. Future reformulation initiatives will need to reconcile and negotiate the varying frames and aims of reformulation in order to ensure they are a success from the public health perspective.

Simulation training in upper tract endourology: myth or reality?

Surgeons training in the twenty-first century are subject to a myriad of pressures, as has always been the case within surgical training. These include reduced hours available for training and increased threat of litigation against their operating practice. The Halstedian approach of "see one, do one, teach one" has been replaced within surgical training and simulation has become established to enable urology trainees to develop technical and non-technical skills away from the operating room. With the primary focus as patient safety and increasing operating skill, "simulation training" encompasses several modalities. These include wet-lab cadaveric and animal models, dry lab, high fidelity, low-fidelity and virtual reality (VR). These can be used to practice generic surgical skills, such as laparoscopic suturing or knot tying on a robotic console. Beyond this there is potential for simulation training courses and full-immersion simulation to address non-technical skills and team aspects within the operating room. To incorporate simulators into training, models must be carefully designed and evaluated according to certain considerations, ensuring that they address parameters such as face, content and construct validity. This review aimed to provide an overview of simulation platforms available within endourology, considering ureterorenoscopy and percutaneous nephrolithotomy and the status of their validation.

The Transfer of Public Lands Movement: Taking Backk Lands That Were Never Theirs and Other Examples of Legal Falsehoods and Revisionist History

Long a hotbed of discontent over federal public land management, Utah rekindled the smoldering “sagebrush rebellion” in 2012 when it passed legislation demanding that the federal government turn millions of acres of public land over to the state. Backed by a multi-million-dollar litigation budget, Utah’s efforts became a model for bills that sprang up in Congress and across the West. While unlikely to succeed in the courts, the transfer movement taps into a long history of antagonism over public land management. This discontent, when combined with the threat of litigation, could drive federal legislation devolving the public domain to the states — and that could forever reshape our nation. Alarmingly, disgruntled individuals are also seizing on Utah’s legal theories to justify wresting public lands from the federal government, too often in violent ways. This article explores the land transfer movement, putting current demands into historical context, critiquing the legal and policy arguments favoring compulsory public land disposal, summarizing the unintended consequences that would flow from public land transfers, identifying the frustrations driving transfer efforts, and offering constructive alternatives to transfer that address the underlying frustrations.

The Politics of Tobacco Control: A History of the U.S. Tobacco Industry

Describes the history of the tobacco industry and its emergence as an extremely effective marketer and non-market strategist. After years of success, both publicly and politically, the leaders of the tobacco industry are faced with mounting political pressure and the financial threat of litigation from class-action lawsuits. The leaders face an industry-wide strategic decision of whether to acquiesce to government demands in exchange for immunity, focus on judicial success, or develop a new course of action.To evaluate the formulation and implementation of non-market strategies in the context of regulatory, legislative, and legal institutions. To understand how various aspects of the non-market environment interact and how these environments not only change over time, but change market competition within an industry. Further, to formulate and decide between firm-specific and industry-wide strategies. Finally, to appreciate and reflect upon the potential conflict between non-market strategies and ethical concerns.