Title: Litigation Risk, Financial Distress, and the Use of Subsidiaries
Abstract: Using a unique hand-collected dataset on corporate subsidiaries and lawsuits, we examine the relationship between litigation risk and subsidiary usage by large U.S. corporations. We find that firms, in general, tend to have a large number of subsidiaries when exposed to high litigation risk. We find that this tendency is strong in financially distressed firms, while it is less pronounced in financially healthy firms. High severity litigation risk matters more than low severity litigation risk. The results are consistent with the predictions of theoretical models and suggest an efficient link between litigation risk and subsidiary usage.
Publication Year: 2016
Publication Date: 2016-06-10
Language: en
Type: article
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