Competition and the reputational costs of litigation
Journal
Journal of Financial and Quantitative Analysis
ISSN
0022-1090
Type
journal article
Date Issued
2025-03-14
Author(s)
Abstract
We study the role of competition in customers’ reactions to litigation against firms, using anonymized mobile phone location data. A class action lawsuit filing is followed by a 4% average reduction in customer visits to target firms’ outlets in the following months. The effect strongly depends on competition. Outlets facing more competition experience significantly larger negative effects. Closer competition matters more, both in terms of geographic and industry proximity. Announcement returns and quarterly accounting revenues around lawsuit filings also strongly depend on competition. Our results suggest that competition is an important component in customers’ ability to discipline firms for misbehavior.
Language
English
Keywords
class action lawsuits
corporate misbehavior
competition
reputational costs
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Volume
60
Number
7
Start page
3412
End page
3442
Division(s)
Contact Email Address
markus.schmid@unisg.ch
Eprints ID
263044
File(s)![Thumbnail Image]()
Name
21_06_Schmid et al_Competition and the reputational costs of litigation.pdf
Size
4.22 MB
Format
Adobe PDF
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