Transfer of risk: "right to sue" legislation and managed care organization stock performance.

We examined whether Congress's consideration of legislation that gave consumers the right to sue managed care organizations impacted the performance of these companies' stocks relative to that of the market. For each company examined, the total return related to such legislation was negative and substantially lower than that expected from the market model; losses in market value were from 17 percent to 48 percent for individual companies and 22 percent for a capitalization-weighted portfolio. The study suggests that equity markets responded to the proposed legislation quickly and that the impact of proposed legislation is felt through loss of market value and increased corporate risk.