Effects of litigation under the Endangered Species Act on forest firm values

The Endangered Species Act (ESA) has been a source of litigation and subject to court interpretation during the past several decades. In this study, event analysis was employed to examine the impact of six court decisions related to the ESA on the financial performance of U.S. forest products firms. The finding of abnormal returns revealed that all six events generated the expected positive or negative returns, and among them, four were statistically significant. Changes in systematic risk reflected the reaction of the stock market to the verdict announcements. Programs designed for habitat conservation can be implemented to compensate private landowners or firms for costs associated with protecting species on private forestlands.