NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Buying the Verdict

Lauren H. Cohen, Umit G. Gurun

NBER Working Paper No. 24542
Issued in April 2018
NBER Program(s):Asset Pricing, Corporate Finance, Law and Economics, Public Economics, Political Economy, Productivity, Innovation, and Entrepreneurship

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.

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Document Object Identifier (DOI): 10.3386/w24542

 
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