Using securities lawsuits related to M&A as an industry shock, we examine whether litigation risk acts as an external governance mechanism by disciplining managers' investment decisions. In the two years following an M&A lawsuit (a lawsuit where plaintiffs allege that the firm hid poor...

This paper analyzes the incentive properties of the standard and burden of proof for a finding of negligence, when evidence about injurers' behavior is imperfect and rests with the parties. We show that the `preponderance of evidence' standard used in common law, together with ordinary exclusion...