Buying the Verdict
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 return 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.
We would like to thank Daniel Klerman, Prasad Krishnamurthy, Panos Patatoukas, Raghu Rau, Stephen Solomon, Jed Stiglitz, and seminar participants at the University of California at Berkeley Law School and Haas Business School as well as the 2017 Conference on Empirical Legal Studies held at Cornell University. We gratefully acknowledge funding from the National Science Foundation (SciSIP-1535813). All errors are ours. Please send comments to either author. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.