In this study, we examine the financial impact of employment discrimination lawsuit verdicts and settlements on publicly traded firms subject to lawsuits between 1997 and 2008. Using data on 174 sex and race discrimination lawsuits involving 107 publicly traded companies, we assess the effect of lawsuit verdicts and settlements on changes in defendants’ daily stock returns. Findings indicate that verdicts and settlements have an immediate negative impact on defendants’ stock prices. In addition, the negative effect is more pronounced among cases that involve monetary payouts, cases in which the U.S. Equal Employment Opportunity Commission is a plaintiff and cases that involve sex as opposed to race or national origin discrimination. These results demonstrate the extent to which legal rulings introduce a market penalty for employers and have implications for the study of law, organizations, and market responses to discriminatory behavior.
Bibliographical noteFunding Information:
The author(s) disclosed receipt of the following financial support for the research, authorship, and/ or publication of this article: This project was funded in part by a grant from the Center for the Study of Inequality at Cornell University. Partial support for this research also came from a Eunice Kennedy Shriver National Institute of Child Health and Human Development Research Infrastructure grant, R24 HD042828, to the Center for Studies in Demography and Ecology at the University of Washington.
All Science Journal Classification (ASJC) codes
- Social Sciences(all)