The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation

Abstract

This article demonstrates that the dispute between Texaco and Pennzoil over the Getty Oil 
\ntakeover reduced the combined wealth of the claimants on the two companies by over 
\n$3 billion. During the course of the litigation, Pennzoil's shareholders gained only one-sixth 
\nas much as Texaco's shareholders lost. When the litigation was settled, about two-thirds of 
\nthe loss in wealth was regained. These fluctuations in value exceed most estimates of the 
\ndirect costs of carrying on the litigation, and may reflect the disruption in the operations of 
\nTexaco caused by the dispute.