The Reputational Costs of Corporate Litigation: Long-Term Media Reputation Damages to Firms’ Involvement in Litigation

Extensive research on the financial costs and risks associated with firms targeted for litigation assumes that being sued negatively impacts firm reputation. Yet, research on the consequences of corporate litigation has focused almost exclusively on the financial ramifications associated with being defendants, solely equating reputational costs with financial costs. I challenge this overly narrow view of reputation and utilize two unique datasets—one for legal actions and the other one comprising affective content analysis across 2000 media sources—for the S&P 500 firms, across 16 years of data, to explore the media reputation effects of corporate litigation. The novel findings of this study show how the affective tone of media reporting can reflect negative normative evaluations of alleged corporate illegality that can last a long time; I find that when firms are identified as corporate defendants, overall sentiment and optimism towards these firms suffer, while affective conflict about the focal firm is increased, for at least 1 year and even beyond. These findings strongly inform research on corporate wrongdoing and litigation as well as impression management research and raise the need to expand the view of the costs of corporate litigation, beyond financial implications.