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So Sue Me: When Lawsuits Improve Firm Performance
Conference proceeding

So Sue Me: When Lawsuits Improve Firm Performance

Miranda Welbourne Eleazar
Academy of Management Annual Meeting Proceedings, Vol.2019(1), pp.1243-1248
2019
DOI: 10.5465/AMBPP.2019.221

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Abstract

Lawsuits are often considered a costly threat to firms that represent underlying organizational problems. In the case of relatively new firms, however, lawsuits are rare events that can provide learning opportunities and potentially prevent future crises and lawsuits. Such learning will be more likely when the lawsuits pose a materially adverse threat to the firm as opposed to nuisance lawsuits, as the materially adverse lawsuits will provoke a higher-level learning response. Firms that learn from those materially adverse lawsuits can gain legal astuteness, allowing them to implement litigation avoidance and damage mitigation strategies in the future, improving firm performance. This article examines the learning effect of materially adverse lawsuits on newly public firms that recently underwent an initial public offering (IPO). The article then studies moderating factors that would affect the level of learning from the materially adverse lawsuits, including the status of the IPO law firm, whether the founder is the CEO, and the firm’s proportion of outside directors. By providing insight into the previously unexamined learning benefits of lawsuits early in the development of the firm, this article contributes to the learning and IPO literatures while also extending the work on legal astuteness and legal strategy.

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