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Robustness of Judicial Decisions to Valuation-Method Innovation: An Exploratory Empirical Study

Authors

  • Feng Chen,

    1. The authors are respectively from the University of Toronto, Canada; Mellon Capital Management Corporation, USA; and the Korea University, Korea. They thank Peter Pope (editor), the anonymous referee, Peter Easton, Seungwoo Kwon, Thomas Lau, and participants of workshops at the 6th Annual APJAE Symposium and Rutgers University for helpful suggestions to improve the paper. They also thank Danish Baig, Julie Christie, Jinsub Hong, Hyungjun Kim, Sharon Park, Nishit Pathak, Joshua Schwartz, Gadizvania Sibbald and David Song for their able research assistance. Kenton K. Yee acknowledges the Eugene Lang Faculty Fellowship at Columbia Business School for financial support. (Paper received February 2008, revised version accepted November 2009)
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  • Kenton K. Yee,

    1. The authors are respectively from the University of Toronto, Canada; Mellon Capital Management Corporation, USA; and the Korea University, Korea. They thank Peter Pope (editor), the anonymous referee, Peter Easton, Seungwoo Kwon, Thomas Lau, and participants of workshops at the 6th Annual APJAE Symposium and Rutgers University for helpful suggestions to improve the paper. They also thank Danish Baig, Julie Christie, Jinsub Hong, Hyungjun Kim, Sharon Park, Nishit Pathak, Joshua Schwartz, Gadizvania Sibbald and David Song for their able research assistance. Kenton K. Yee acknowledges the Eugene Lang Faculty Fellowship at Columbia Business School for financial support. (Paper received February 2008, revised version accepted November 2009)
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  • Yong Keun Yoo

    Corresponding author
    1. The authors are respectively from the University of Toronto, Canada; Mellon Capital Management Corporation, USA; and the Korea University, Korea. They thank Peter Pope (editor), the anonymous referee, Peter Easton, Seungwoo Kwon, Thomas Lau, and participants of workshops at the 6th Annual APJAE Symposium and Rutgers University for helpful suggestions to improve the paper. They also thank Danish Baig, Julie Christie, Jinsub Hong, Hyungjun Kim, Sharon Park, Nishit Pathak, Joshua Schwartz, Gadizvania Sibbald and David Song for their able research assistance. Kenton K. Yee acknowledges the Eugene Lang Faculty Fellowship at Columbia Business School for financial support. (Paper received February 2008, revised version accepted November 2009)
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Address for correspondence: Yong Keun Yoo, Korea University Business School, Main Hall #402, Korea University, 5Ga-1, Anam-Dong, Sungbuk-Gu, Seoul, 136-701, Korea.
e-mail: yooyk@korea.ac.kr

Abstract

Abstract:  In shareholder litigation, judges and litigants choose from a menu of valuation methods that is evolving over time. What drives demand for new valuation methods? Does valuation method choice affect a judge's final appraisal? Is a judge more likely to favor the litigant whose valuation method coincides with the judge's if the other litigant uses a different method? Using a comprehensive hand-collected sample of Delaware appraisal remedy shareholder litigation cases, we show that the distribution of judicial appraisal outcomes is insensitive to valuation methodology. Moreover, valuation method agreement between judge and plaintiff (or between judge and defendant) does not influence the judge's appraisal. In this sense, judicial valuation is robust to innovations in valuation technology. However, we find that judicial valuation method choice is contextual. The method a judge chooses depends on the fundamental attributes of the firm as well as the quality of litigants' proposed valuation estimates. We conclude that judges demand new valuation methods when the new methods are contextually more appropriate.

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