Abstract
We use a unique hand-collected dataset on corporate litigation to empirically examine the relationship between litigation risk and investment policy. We document a positive relationship between litigation risk and total investments. Decomposing total investments into capital expenditure, and research and development expense, we find a positive relationship between litigation risk and capital expenditure. We also find a positive relationship between litigation risk and research and development expense. The results are robust to different measures of litigation risk.
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Notes
Tobit model is a censored regression methodology. This technique is designed to estimate linear relationships between variables when there is either left- or right-censoring in the dependent variable. The results continue to hold under this methodology.
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Malm, J., Adhikari, H.P., Krolikowski, M. et al. Litigation risk and investment policy. J Econ Finan 41, 829–840 (2017). https://doi.org/10.1007/s12197-016-9382-6
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DOI: https://doi.org/10.1007/s12197-016-9382-6