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Value creation and value destruction in investor-state dispute arbitration

Author

Listed:
  • Brada, Josef C.
  • Chen, Chunda
  • Jia, Jingyi
  • Kutan, Ali M.
  • Perez, M. Fabricio

Abstract

We investigate whether investor-state arbitration under investment protection treaties is valuable to foreign investors, and whether international arbitration has effects on firm value that are like those seen in domestic litigation. An event study of abnormal returns when claims for arbitration are filed and adjudicated show that firms gain in market value both at the time they file for arbitration and when they receive an award. These gains in value generally exceed the size of the awards, indicating that success in arbitration provides the foreign investor not only monetary compensation but also non-monetary reputational effects that reduce costs of doing business abroad. Stock markets anticipate the outcomes of the arbitration process when claims are filed and when awards are announced. The effects on firm value of domestic litigation and investor-state arbitration differ, reflecting the institutional differences between the two methods of resolving disputes.

Suggested Citation

  • Brada, Josef C. & Chen, Chunda & Jia, Jingyi & Kutan, Ali M. & Perez, M. Fabricio, 2022. "Value creation and value destruction in investor-state dispute arbitration," Journal of Multinational Financial Management, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:mulfin:v:63:y:2022:i:c:s1042444x21000517
    DOI: 10.1016/j.mulfin.2021.100728
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    More about this item

    Keywords

    Bilateral investment treaties; Investor-State disputes; Firm value; Litigation; Foreign direct investment;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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