KU News: Attorney marketing tactics compared to ‘corporate ambulance chasing’ in new study

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Contact: Jon Niccum, 785-864-7633, [email protected]

Attorney marketing tactics compared to ‘corporate ambulance chasing’ in new study
LAWRENCE — The cliché of an unscrupulous lawyer pursuing clients who’ve just been injured after an accident is known as “ambulance chasing.” But does this same tactic also apply to big business?

 

“The most cynical view of corporate ambulance chasing is that any time a stock price drops or a negative press release is announced, you see lawyers chasing it,” said Eric Weisbrod, an associate professor of accounting at the University of Kansas School of Business. “We were curious to see if that played out in the data.”

 

His team’s research has resulted in a working paper titled “Corporate Ambulance Chasing? Plaintiff’s Attorney Marketing as a Signal of Corporate Litigation Risk.” It reveals that both traditional and social media announcements of plaintiff’s attorneys’ corporate investigations strongly predict future litigation.

 

And it finds that attorneys’ efforts to recruit additional plaintiffs after a lawsuit has been filed signal that the action is more likely to succeed and result in more severe damages.

 

Co-written with KU’s Adi Masli and Matt Peterson and Steven Kaplan of Arizona State University, the paper is predicated on a common litigation strategy. Upon learning of an “adverse” corporate event, plaintiff’s attorneys sometimes issue marketing releases announcing they are “investigating potential claims” against the corporation on behalf of shareholders and encouraging them to contact the law firm.

 

“Only 19.87% of the adverse events examined in our study lead to material lawsuits, but these lawsuits are costly for shareholders and managers when they do occur,” Weisbrod said.

 

“When something bad happens, people want to know, is the company going to get sued? We find that, instead of chasing every adverse event, attorneys use their judgment to selectively invest in marketing in situations where there’s more likely to be grounds for a lawsuit. So if you see attorneys marketing around such an event, that should raise the risk of a lawsuit or a negative outcome to the company.”

 

What is his definition of an adverse event?

 

“We examine announcements of things like financial restatements, missed earnings targets, auditor resignations and management turnover. We also look at mergers and acquisitions, which can increase litigation risk because shareholders of the target company sometimes sue to try to block the acquisition and get a higher acquisition price,” he said.

 

Weisbrod and his team conducted their main analyses at the company-month level, resulting in a sample of 298,411 company-month observations from 2013-2020. He searched for keywords on social media such as “investigation, behalf, shareholders” combined with terms such as “LLP” to let them know a law firm was involved.

 

“We started looking at tweets around restatements and saw a lot of them were from law firms starting investigations,” he said. “Once we saw that, we realized this could be a bigger phenomenon,” he recalled.

 

Litigation risk is invariably a concern for corporations and their shareholders. Weisbrod noted that maximum potential dollar losses from securities class action lawsuits reached an all-time high of $2.25 trillion in 2023.

 

“I always try to target my research to be relevant to investors,” he said. “But there are additional stakeholders who should be interested in this project. If an adverse event is announced, management is going to be very concerned if they’re going to get sued.

 

“Audit committees and boards of directors who have a vested interest and could potentially be named as defendants in a lawsuit might want to pay attention. Insurance companies also have an interest in estimating whether they will have to pay out claims resulting from the lawsuits. And it might have some interest to regulators, particularly the social media aspect of it.”

 

He also believes the study’s results imply that attorney marketing should not be considered indiscriminate ambulance chasing.

 

“Lawyers are really using their judgment to only market in cases where they think there’s a legitimate harm to shareholders,” he said.

 

Weisbrod previously served as an academic fellow in the Office of the Chief Accountant at the U.S. Securities and Exchange Commission in Washington, D.C. The Dallas native came to KU in 2020, where his research focuses on financial data providers and financial analysts.

 

“If you see an investigation announcement on Twitter or in The Wall Street Journal, then watch out, because it’s a very good signal there’s going to be a lawsuit coming up soon,” Weisbrod said. “This is like the sharks circling. If you see attorneys raising flags, then you really know to take seriously what’s happening.”

 

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http://www.news.ku.edu

 

Erinn Barcomb-Peterson, director of news and media relations, [email protected]

 

Today’s News is a free service from the Office of Public Affairs

 

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