Thriving In The Midst Of Financial Distress? An Analysis Of Firms Exposed To Asbestos Litigation

Asbestos litigation is one of the most important mass tort litigations in the history of the United States. The paper analyze a comprehensive sample of 270 firms that were exposed to an unprecedented wave of asbestos litigation in the wake of U.S. Supreme Court decisions in Amchem (1997) and Ortiz (1999). Due to insurance coverage, most firms in the sample have manageable cash outflows and do not suffer materially from the litigation. Because of the long delay between exposure to asbestos and its related illnesses, the remaining firms with substantial cash outflows and liabilities offer a rare natural experiment to study financial distress unrelated to economic distress. When analyzing this sub-sample throughout the distress period, little evidence of indirect costs of financial distress is found.