Published on:

Lawsuits are not relevant in terms of 25 percent drops in share price

I could retire if I had a dollar for every time someone mentions “bet-the-company” litigation (See my post of Feb. 28, 2006: bet-the-company litigation, rare but often cited.). So, with some satisfaction, I pored over the chart in the ACC Docket, Vol. 26, Nov. 2008 at 62, which graphs 18 “Primary Causes of 25%+ Stock Drops for 100 of Fortune 1000 Companies.” Way down at the end is “Lawsuits” at zero percent. Zippo.

And heed the plural (“Lawsuits”): all litigation put together does not rock the boat of those large companies (See my post of May 4, 2005: event studies and patent litigation; June 5, 2006: claim that share price is influenced by general counsel’s decisions or appointment; March 10, 2006: lead paint litigation dropped Sherwin Williams’ stock price 30%; July 25, 2005: litigation and share price; Nov. 5, 2006: shareholder derivative suits and share price; and June 14, 2007: firms lose 5% of share price when sued on a patent.).

Do not misunderstand my point. A drop of less than 25 percent can, of course, shake a corporate world. And litigation is costly, strategic, important, and difficult. But compared to business knockouts like “competitive pressure,” “cost overruns,” and “customer demand shortfall,” even major lawsuits don’t cause a ripple on the stock market.