Employment Discrimination Litigation and the Value of the Firm

By Blose, Laurence E.; Calvasina, Gerald E. | Journal of Legal, Ethical and Regulatory Issues, January 2002 | Go to article overview
Save to active project

Employment Discrimination Litigation and the Value of the Firm

Blose, Laurence E., Calvasina, Gerald E., Journal of Legal, Ethical and Regulatory Issues


This paper examines the stock market reactions to announcements regarding employment discrimination. The study finds that there are no statistically significant excess returns associated with settlement announcements and decision announcements. Announcements of new lawsuits, however, are accompanied by a weak and barely significant negative excess return. These findings are contrary to earlier reported findings of strongly negative excess returns for all three types of announcements. The paper suggests that the different results arise from changes in the discriminatory behavior of the firms over the study period. Additionally, the paper finds that despite provisions for punitive damages in The Civil Rights Act of 1991, excess returns associated with announcements regarding employment discrimination lawsuits subsequent to the change in the law are not significantly lower than those prior to the law.


This paper examines the extent to which employment discrimination litigation affects the stock price and returns of publicly traded companies. Research examining discrimination litigation announcements through the mid 1980's have shown that employment discrimination lawsuits are associated with significantly negative stock returns. This study however, shows that more recently, the impact of such announcements have attenuated. This study shows that during the period 1980 through 1995 that announcements of settlements or decisions regarding such lawsuits are accompanied by returns insignificantly different from zero. Announcements of new lawsuits are accompanied with weak but significantly negative excess returns. The paper suggest, reasons for the disparate findings between this study and earlier findings.

Announcements of discrimination lawsuits involving seven or eight figure claims make impressive headlines. However, do these lawsuits have a meaningful impact on the value of the company? Surely, large settlements have a clear influence on shareholder wealth. Take for example, the high profile settlements at Shoney's and Texaco. In 1993 Shoney's agreed to distribute $105 Million in damages and back pay to approximately 10,000 African Americans who either worked for Shoney's or were denied employment over a seven year period. This was in addition to a $30 million agreement in 1989 to recruit more minorities, employ more black vendors, and help blacks acquire franchises. In addition, Shoney's agreed to commit itself to a "top-to-bottom" transformation of its EEO policies. Texaco held the headlines in 1996 with the now famous tape of Texaco executives referring to minority employees with racial epithets. Texaco, confronted with adverse publicity on many fronts including threats of a boycott by major civil rights groups, agreed to a $176 million settlement in January of 1997. Since the shareholder bears the costs of these awards, such lawsuits can be expected to have a substantial impact on the affected companies' stock prices.

These examples demonstrate that the cost of employment discrimination lawsuits can be substantial. Damage awards get the headlines, but there are additional costs to firms faced with these types of problems. These include legal fees and loss of customers and business arising from the bad publicity (Cox & Blake, 1991). Also, firms that violate anti-discrimination and harassment regulations may have difficulty attracting and retaining talented employees (Johnston, 1991). Additionally, firms with discriminatory practices tend to have higher operating cost due to high absenteeism, turnover, and job dissatisfaction (Swartz, 1981). These collateral costs may be suffered by firms even if the lawsuit ultimately is unsuccessful or results in minimal awards.


Previous research present mixed results regarding the effect of announcement of discrimination related lawsuits. Hersch (1991) examined excess returns for 260 announcements over the period from 1964 through 1986, a period encompassing 23 years.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Employment Discrimination Litigation and the Value of the Firm


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?