| Abstract: | We use event study methodology to examine the effects of productliability litigation on firms in the automobile and pharmaceuticalindustries. We find that the filing of a lawsuit, or news storiesthat subsequently lead to the filing of a lawsuit, is associatedwith significant losses in firm value. These losses are approximatelyequal to the upper bound of the direct loss in value of thefirms involved. This means that there may also be some reputationeffect from litigation events. We also find that in the automobileindustry competitors lose when one firm is sued, but in thepharmaceutical industry a lawsuit against one firm leads toan increase in value of other firms. |
