Litigation and the value of tobacco companies.

Journal Article (Journal Article)

This study determines how the recent wave of litigation affected returns and systematic risk in the tobacco industry. We test for changes in stock prices coinciding with litigation announcements using a difference-in-difference event study methodology. Unfavorable information concerning litigation reduced tobacco returns. We find a decline in systematic risk as traditionally measured by the covariance between industry returns and returns to a diversified (efficient) portfolio. This decline may imply a substantial decline in the cost of equity capital of at least 2.2% after the period of litigation, which we attribute to common cost shocks experienced by the companies participating in the Master Settlement Agreement combined with the oligopolistic structure of the industry.

Full Text

Duke Authors

Cited Authors

  • Sloan, FA; Trogdon, JG; Mathews, CA

Published Date

  • May 2005

Published In

Volume / Issue

  • 24 / 3

Start / End Page

  • 427 - 447

PubMed ID

  • 15811537

Electronic International Standard Serial Number (EISSN)

  • 1879-1646

International Standard Serial Number (ISSN)

  • 0167-6296

Digital Object Identifier (DOI)

  • 10.1016/j.jhealeco.2004.09.009

Language

  • eng