Abstract

There are abundant researches on the negative effects of litigation. It is acknowledged that litigation can cause wealth leakage when we consider the stock returns of both parties involved. In this study, we use the data of listed electronic and computer-related firms in Taiwan to study the behaviors of long-run abnormal stock returns of the losing firms around the time of litigation judgments and thereafter. We apply event study and threshold regression to examine the existence of long-run abnormal stock returns reversion. Then use OLS to find out factors affecting the length of time needed to reverse the downward trend of abnormal returns. After a period of time, the trends of abnormal stock returns are reversed. The higher level of information transparency the firm is to the market, the faster the reversion occurs. The quality of corporate governance is also negatively correlated to the length of time of reversion.

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