On the Relationship of Liability Action and Reputational risk: An Empirical Analysis
Adalberto Rangone, PhD

Abstract
Today there is still widespread uncertainty as to whether it is convenient to refer internal corporate disputes to arbitration rather than judicial litigation and it is often possible to encounter legal systems that still limit the use of arbitration to specific conflicts. The purpose of this study is to analyze the relationship of liability action and reputational risk, the way it may undermine the company’s stability if compared to the case where a more discreet arbitration clause is adopted. The cases of application of the liability action and those which have adopted the arbitration clause as a term of comparison have been defined on a population of 428 Italian unlisted joint-stock companies. The technique of Chi-Square was used to avoid empirical evidence being determined by chance. These work findings allow demonstrating the substantial correlation between the adoption of the arbitration clause - replacing the liability action against directors - and the reduction of cases of reputational problems regardless of their causes.

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