The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation

David Cutler · Lawrence H. Summers

182 citations0/0 files storedThe RAND Journal of Economics

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Law, Economics, and Judicial Systems Corporate Finance and Governance Corporate Insolvency and Governance

Abstract

This article demonstrates that the dispute between Texaco and Pennzoil over the Getty Oil \ntakeover reduced the combined wealth of the claimants on the two companies by over \n$3 billion. During the course of the litigation, Pennzoil's shareholders gained only one-sixth \nas much as Texaco's shareholders lost. When the litigation was settled, about two-thirds of \nthe loss in wealth was regained. These fluctuations in value exceed most estimates of the \ndirect costs of carrying on the litigation, and may reflect the disruption in the operations of \nTexaco caused by the dispute.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1996Agency costs of free cash flow, corporate finance, and takeovers 1982Perfect Equilibrium in a Bargaining Model 1969The Adjustment of Stock Prices to New Information 2003The Adjustment of Stock Prices to New Information 1977BANKRUPTCY COSTS: SOME EVIDENCE 1984A Further Empirical Investigation of the Bankruptcy Cost Question

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