Companies’ Politics Affect the Lawsuits They Face

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New research from The University of Miami School of Business Administration suggests the political leanings of a company affect what lawsuits it ends up in.

“Democratic-leaning firms are less likely than Republican-leaning firms to be sued for environmental, labor, and civil rights violations,” the study from the school’s finance department says. “Firms with a Republican culture are less likely than Democratic-oriented firms to face legal action for securities fraud and intellectual property rights violations.”

The researchers collected all the litigation against companies over a 15-year period (almost 53,000 lawsuits, which works out to nearly 10 per day) and categorized it. They analyzed political culture through campaign contributions and political action committee support.

Other key findings…

  • Compared to firms with a Republican culture, Democratic-leaning firms are 13.6 percent less likely to be the subject of employment civil rights litigation, 4 percent less likely to be the subject of labor litigation, and .8 percent less likely to be the subject of environmental litigation.
  • Compared to firms with strong Democratic culture, Republican firms are 2.4 percent less likely to be sued for securities violations and 5.6 percent less likely to be sued for intellectual property violations.
  • Republican-leaning firms are 8 percent more likely to face litigation in general compared to firms with a strong Democratic culture.
  • On average, the stock market reacts more negatively to litigation events involving firms with a Republican culture, perhaps because investors are more surprised. Thus, the relations between political culture and litigation propensity across different domains is not fully recognized by the stock market. Investors hold an incorrect prior belief that Republican firms are less likely to engage in wrongdoing in most domains.

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