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We estimate the link between the court system and firm value by exploiting a U.S. Supreme Court ruling which changed firms' exposure to different courts. We find that exposure to courts which are highly ranked by the U.S. Chamber of Commerce increases firm value. The effect is driven by courts‘ attitude towards businesses more than by their efficiency and is more pronounced for firms in industries with high litigation risk. We also test whether firms benefit from the ability to steer lawsuits into friendly courts so-called forum shopping. We provide evidence that a reduction in firms‘ ability to forum shop decreases firm value whereas a reduction in plaintiffs‘ ability to forum shop increases firm value. |
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