States' allocations of funds from the tobacco master settlement agreement.

This study assesses six states' allocation decisions for funds from tobacco settlement agreements, using information from newspaper articles and other public sources. State allocation decisions were diverse; substantial shares were allocated to areas other than tobacco control and health, including capital projects and budget shortfalls. The allocations did not reflect the stated goals of the lawsuits leading to the settlements. This outcome reflects a lack of strong advocacy from public health interest groups, an unreliable public constituency for tobacco control, and inconsistent support from state executive and legislative branches, all combined with sizable budget deficits that provided competing uses for settlement funds.

Litigation and the value of tobacco companies.

This study determines how the recent wave of litigation affected returns and systematic risk in the tobacco industry. We test for changes in stock prices coinciding with litigation announcements using a difference-in-difference event study methodology. Unfavorable information concerning litigation reduced tobacco returns. We find a decline in systematic risk as traditionally measured by the covariance between industry returns and returns to a diversified (efficient) portfolio. This decline may imply a substantial decline in the cost of equity capital of at least 2.2% after the period of litigation, which we attribute to common cost shocks experienced by the companies participating in the Master Settlement Agreement combined with the oligopolistic structure of the industry.