Enterprise litigation risk and risk taking

As a significant uncertainty in business operations, litigation risk negatively impacts corporate reputation and increases corporates' risk-taking. This paper explores the impact of litigation risk on corporate risk-taking. The study finds that: the more significant the amount of litigation involved and the higher the litigation risk, the greater the corporate risk-taking; the higher the analyst concern, the smaller the role of corporate litigation risk in enhancing corporate risk -taking; and the mediation test finds that firms with higher litigation risk can increase corporate financing constraints and negatively affect corporate risk-taking.

Automated summary

Litigation risk has a significant impact on corporate risk-taking, with higher amounts and higher risk leading to greater risk-taking. The role of corporate litigation risk in enhancing risk-taking is diminished when analysts express concern. Firms with higher litigation risk may face financing constraints and a negative effect on risk-taking.