Corpus ID: 73669100

Growing Out of Trouble? Legal Liability and Corporate Responses to Adversity *

@inproceedings{Gormley2009GrowingOO,
  title={Growing Out of Trouble? Legal Liability and Corporate Responses to Adversity *},
  author={Todd A. Gormley and David A. Matsa},
  year={2009}
}
This paper uses exogenous increases in legal liability to analyze the importance of agency conflicts arising from managers’ exposure to firm risk. We measure how a typical firm responds when a chemical to which its workers are exposed is newly identified to be a carcinogen. While there is no evidence of a pre‐existing trend, we find that firms, particularly those with weak balance sheets, tend to undertake aggressive growth and increased acquisitions after experiencing the liability shock. The… Expand

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