Journal of Financial Economics Vol. 60 No. 2-3 2001
The information content of litigation participation securities: the case of CalFed Bancorp
Abstract
CalFed Bancorp is one of 126 S&Ls suing the U.S. government for breach of contract related to supervisory goodwill, a form of goodwill created by the acquisition of insolvent thrifts during the early 1980s. Before a determination of damages in its lawsuit, CalFed announced and issued a litigation participation security giving shareholders a proportional claim on recovered damages, if any. This announcement generated a positive excess return in part because it made CalFed a more likely acquisition target. Trading in the security also reveals important, yet previously unavailable, information about CalFed's lawsuit: its price reveals a market-based estimate of damages while its beta reveals information regarding expected returns and trial duration. In a broader context, this paper identifies acquisition facilitation as a benefit of issuing targeted stock and highlights a series of lawsuits that will set important precedents regarding the determination of liability and the estimation of damages in breach of contract cases.
- DOI
- 10.1016/s0304-405x(01)00048-4
- Volume
- 60
- Issue
- 2-3
- Pages
- 371-399
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib