Working Paper | 2018

Buying the Verdict

by Lauren H. Cohen and Umit G. Gurun

Abstract

We document evidence that firms systematically increase specialized, locally targeted advertising following the firm being taken to trial in that given location—precisely following initiation of the suit. In particular, we use legal actions brought against publicly traded firms over the 20-year sample period that progress to trial from 1995–2014. In terms of magnitude, the increase is sizable: targeted local advertising increases by 23% (t=4.39) following the suit. Moreover, firms concentrate these strategic increases in locations where the returns on their advertising dollars are largest: in smaller, more concentrated advertising markets where fewer competitor firms are advertising. They focus their advertisement spikes specifically toward jury trials and, in fact, specifically toward the most likely jury pool. Lastly, we document that these advertising spikes are associated with verdicts, increasing the probability of a favorable outcome.

Keywords: Lawsuits and Litigation; Advertising; Geographic Location; Outcome or Result;

Language: English Format: Print Find at Harvard Read Now

Citation:

Cohen, Lauren H., and Umit G. Gurun. "Buying the Verdict." NBER Working Paper Series, No. 24542, April 2018.

About the Author

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Lauren H. Cohen
L.E. Simmons Professor of Business Administration
Finance
Entrepreneurial Management

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