Litigation risk: Measurement and impact on M&A transaction terms

Litigation risk: Measurement and impact on M&A transaction terms


Seminar by Hubert De La Bruslerie (Paris Dauphine)

On Tuesday, January 31, 2017 at 11:00 am (1701 - N1)

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The purpose of the paper is to propose an original proprietary proxy of a firm’s litigation risk. We extend the scope of litigation risk outside of the conflicts with shareholders and the domain of security litigation. We demonstrate that the source of the risk of litigation can be found in the firm’s policies and in its management’s operational or strategic decisions, even if a sector conditioning effect exists. Based on a sample of 1051 M&A transactions between 2000 and 2013, we provide evidence that the level of litigation risk, at the acquirer’s level, has a positive and significant impact on the takeover premium. We also provide evidence that a significant relationship exists between the acquirer’s litigation risk and the means of payment. 

Keywords: litigation risk, litigation proxy, acquisition premium, means of payment, idiosyncratic risk

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