Doctor of Philosophy
This dissertation aims to provide a preliminary examination of corporate litigation using a unique hand-collected sample of 262 corporate lawsuits involving 72 publicly-traded organizations listed on the Toronto Stock Exchange.
The first set of studies explores how the market reacts when organizations go to court to resolve a lawsuit. Unlike previous U.S.-focused studies, no significant relation between abnormal market returns, the trial, and the subsequent court decision was found. These results suggest that the Canadian stock market, on average, does not perceive litigation as a significant event.
The second set of studies explores how financial resources, in-house litigation ability and the chief legal officer interact to increase the organization's odds of winning the trial. Results did not support the hypotheses that trial outcomes are influenced by the financial size of the organization nor by the in-house litigation ability. However, there was evidence that the relationship between an organization's financial resources and the odds of winning were mediated by the internal litigation ability. Since the direct effects were non-significant, this result should be considered with caution. The hypothesis of a moderating relationship between the CLO and in-house litigation ability was not supported; instead, evidence of a (weak) interaction was found between these two variables.
The findings from both sets of studies challenge the economic model of litigation that is predominant in the management literature. Recommendations for future research include extending the sample to include decisions from administrative tribunals and during the process to develop a better understanding of how organizations mobilize the legal system to improve organizational performance.
Summary for Lay Audience
Litigation is a common reality for organizations of all sizes and types. More organizations are depending on the legal system to fairly and efficiently resolve legal disputes, which contributes to a complex and dynamic legal environment. However, very little attention has been paid to the potential of a litigation strategy that engages the court to reduce uncertainty and significantly improve organizational performance.
In the first part of my research, I examined how the market reacts when organizations resolve disputes at court instead of private settlement. I expected that shareholders would react negatively when a trial starts due to the uncertainty and costs involved, but positively when there's good news about a favourable outcome. Surprisingly, I did not find a significant connection between the trial events and subsequent court decisions. This suggests that, on average, the Canadian stock market doesn't consider litigation as a major event.
In the second part of my study, I examined how financial resources, in-house legal expertise, and the role of the Chief Legal Officer (CLO) affect a company's chances of winning a trial. I predicted that having internal litigation expertise would improve a company's ability to identify important lawsuits and increase their chances of winning. Additionally, I expected that having a CLO on the executive team would further enhance these outcomes. However, my results did not support these hypotheses, suggesting that more research is needed to better understand the impact of legal resources on court decisions.
Overall, these findings challenge the prevailing economic model of litigation in management literature. Going forward, future research should include more industry-level contextual factors to better understand how organizations leverage the system to improve their performance.
Makris, Nicole E., "Examining Corporate Litigation: Market Reactions, Resource Allocation, and Trial Outcomes" (2023). Electronic Thesis and Dissertation Repository. 9383.
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