Working Paper: NBER ID: w24542
Authors: Lauren H. Cohen; Umit G. Gurun
Abstract: We document evidence that firms systematically increase specialized, locally targeted advertising following the firm being taken to trial in that given location - precisely following initiation of the suit. In particular, we use legal actions brought against publicly traded firms over the 20 year sample period that progress to trial from 1995-2014. In terms of magnitude, the increase is sizable: targeted local advertising increases by 23% (t=4.39) following the suit. Moreover, firms concentrate these strategic increases in locations where the return on their advertising dollars are largest: in smaller, more concentrated advertising markets where fewer competitor firms are advertising. They focus their advertisement spikes specifically toward jury trials, and in fact specifically toward the most likely jury pool. Lastly, we document that these advertising spikes are associated with verdicts, increasing the probability of a favorable outcome.
Keywords: No keywords provided
JEL Codes: D22; G30; K41; K42; L14; M21; M37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lawsuit initiation (K41) | Increase in specialized local advertising (Z23) |
| Lawsuit initiation (K41) | Probability of initiating advertising increases (M37) |
| Lawsuit initiation (K41) | Advertising spikes concentrated in smaller markets (D49) |
| Lawsuit initiation (K41) | Targeted advertising at demographics likely to serve on juries (K41) |
| Increase in advertising (M37) | Increase in win rates in trials (K41) |