Reputation Through Litigation

“Reputation matters” is by now almost a mantra. Scholars of commercial law increasingly refer to reputational concerns as important forces that shape our behavior – a “system of control” of sorts. The idea – backed by mounting empirical evidence – is that news about corporate misbehavior should bring with it declines in stock prices, in consumers’ willingness to pay, and in employee motivation. Companies and business people anticipate the risk of diminished future business opportunities, and it encourages them to avoid misbehaving, the argument goes. Yet so far the literature has stayed remarkably silent on how exactly reputation matters, or … Read more

A Reputational Theory of Corporate Law

How does corporate law matter? My recent paper suggests that the main impact of corporate law is not in imposing sanctions, but rather in producing information. The process of litigation or regulatory investigations produces information on the behavior of defendant companies and businessmen. This information reaches third parties, and affects the way that outside observers treat the parties to the dispute. In other words, corporate and securities litigation affects behavior indirectly, through shaping the reputations of companies and businessmen.

The paper explores how exactly information from the courtroom translates into the court of public opinion. By analyzing the content of … Read more