Firm in Lawsuit: Prey or Predator? (original) (raw)

2016

Abstract

When the plaintiff and defendant are asymmetrically informed about their firms’ characteristics, the judicial process time and the court decisions will not effortlessly be predicted. This paper examine if the follow in lawsuit can implicitly hide behind a predatory or prey parties’ behaviors and what factors can explain. We assume that an inter-firm legal case is a predation attempt to oust a competitor in the same sector. This behavior can be explained by some economic characteristics such as the size, the leverage level and the opportunities growth. The defendant will inevitably be a prey that suffers of eviction caused by litigation costs and bad reputation signals. Our sample is composed by 287 firms listed in the Canadian stock market during the period from 1999 to 2006. In the empirical investigation is conducted using a binary pooled probit dichotomy model. Our results reveal the that plaintiff is “an innocent predator” where its objectives are to maximize its profits when the rival cannot pay the litigation costs set and have not possibility to run into debts. Thus, litigation announcement is a signal to win new market share. Mutually, the defendant is a prey in the sense that it is a victim of bad signals and bad reputation disclosed by the plaintiff. Key Words—Information asymmetry, economic predation,

besma hkiri hasn't uploaded this paper.

Let besma know you want this paper to be uploaded.

Ask for this paper to be uploaded.