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by Patrick A. Gaughan
Measuring Business Interruption Losses and Other Commercial Damages, 3rd Edition
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CHAPTER 1: Introduction
Development of the Field of Litigation Economics
Development of the Field of Forensic Accounting
Qualifications of an Economic Expert
Qualifications of an Accounting Expert on Damages
Interdisciplinary Nature of Commercial Damages Analysis
Difference Between Disciplines of Economics and Finance
Finding a Damages Expert
Critically Reviewing a Potential Expert’s Curriculum Vitae
Getting the Damages Expert on Board Early Enough
Courts’ Position on Experts on Economic Damages
Standards for Admissibility of Expert Testimony
Exclusion of Experts
Trends in Daubert Challenges to Financial Experts
Expert Reports
Defense Expert as a Testifying Expert, Not Just a Consultant
Quantitative Research Evidence on the Benefits of Calling a Defense Expert
Treatment of the Relevant Case Law
Legal Damage Principles
Other Types of Damages Cases
Summary
References
CHAPTER 2: Economic Framework for the Lost Profits Estimation Process
Foundation for Damages Testimony
Role of Assumptions in Damages Analysis
Hearsay
Approaches to Proving Damages
Causality and Damages
Using Demonstrative Evidence to Help the Client Understand Its Losses or Lack of Losses
Causality and Loss of Customers
Graphical Sales Analysis and Causality
Causality and the Special Case of Damages Resulting from Adverse Publicity
Length of Loss Period: Business Interruption Case
Length of Loss Period: Plaintiff Goes Out of Business
Length of Loss Period: Breach of Contract
Methodological Framework
Summary
References
CHAPTER 3: Economic Analysis in Business Interruption Loss Analysis
Economic Fluctuations and the Volume of Litigation
Macroeconomic Analysis
Definition of a Recession
Measuring Economic Growth and Performance
Business Cycles and the Movement of GDP Components
Business Cycles and Economic Damages
Varying Responses to Business Cycles Across Industries
Using More Narrowly Defined Economic Aggregates
Quantifying the Strength of the Relationship Between Selected Economic Aggregates and Firm Performance
Implementing Inflationary Adjustments
Regional Economic Trends
Quality and Timeliness of Regional Economic Data
International Economic Analysis
Globalization of Supply and Demand
Summary
References
CHAPTER 4: Industry Analysis
Sources of Industry Data
North American Industry Classification System
Retaining an Industry Expert
Conducting an Industry Analysis
Relating Industry Growth to the Plaintiff’s Growth
Other Industry Factors
Yardstick Approach and Industry Analysis
Summary
References
CHAPTER 5: Projecting Lost Revenues
Projections Versus Forecasts: Economic Versus Accounting Terminology
Using Graphical Analysis as an Aid in the Forecasting Process
Methods of Projecting Lost Revenues
Curve‐Fitting Methods and Econometric Models
Understanding Regression Output and Diagnostics
Common Problems Affecting Regression Models
Confidence in Forecasted Values
Frequency of the Use of Econometric Techniques in Commercial Litigation
Seasonality and the Forecasting Process
Capacity Constraints and Forecasts
Sensibility Check for the Forecasted Values
Projecting Lost Sales for a New Business
Projecting Losses for an Unestablished Business
Summary
Appendix
References
CHAPTER 6: Cost Analysis and Profitability
Presentation of Costs on the Company’s Financial Statements
Measures of Costs
Profit Margins and Profitability
Appropriate Measure of Profitability for a Lost Profits Analysis
Burden of Proof for Demonstrating Costs
Fixed Versus Variable Costs
Using Regression Analysis to Estimate Costs as Opposed to More Basic Methods
Pitfalls of Using Regression Analysis to Measure Incremental Costs
Possible Nonlinear Nature of Total Costs
Limitations of Using Unadjusted Accounting Data for Measuring Incremental Costs
Treatment of Overhead Costs
Must a Plaintiff Be a Profitable Business to Recover Damages?
Mitigation of Damages
Cash Flows Versus Net Income: Effects on the Discounting Process
Recasted Profits
Firm‐Specific Financial Analysis
Cross‐Sectional Versus Time Series Analysis
Summary
References
CHAPTER 7: Time Value of Money Considerations
Determination of Interest Rates
Types of Interest Rates
Financial Markets: Money Market Versus Capital Market
Money Market Securities and Interest Rates
Capital Market
Real Versus Nominal Interest Rates
Determinants of Interest Rates
Prejudgment Losses
Components of the Cost of Capital
Discounting Projected Future Profits
Should the Risk‐Free Rate Be Normalized?
Common Errors Made in Discounting by Damages “Experts”
Summary
References
CHAPTER 8: Business Valuations
Legal Standard for Business Valuations in Business Interruption and Business Failure Lawsuits
Lost Profits Versus Lost Business Value
Business Valuation Framework
Public Versus Private Companies
Business Valuation Parameters
Revenue Ruling 59–60 and Factors to Consider in Valuation
Valuation Concepts
Capitalization of Earnings
Adjustments and Discounts
Summary
References
CHAPTER 9: Intellectual Property
Patents
Computation of Damages for Patent Infringement
Legal Requirements Necessary to Prove Lost Profits
Royalty Arrangements
Copyrights
Measurement of Damages for Copyright Infringement
Trademarks
Trade Secrets
Summary
References
CHAPTER 10: Securities‐Related Damages
Key Securities Laws
Damages in Securities Litigation
Fraud‐on‐the‐Market
Comparable Index Approach
Event Study Approach
Examining the Variation in Abnormal Returns
Limitations of the Event Study Model
Broker Raiding Cases
Merger‐Related Damages
History of Mergers in the United States
Client‐Broker Claims
Churning
References
CHAPTER 11: Antitrust
Antitrust Laws
Antitrust Enforcement
Economics of Monopoly
Interpretation of Antitrust Violations: Structure Versus Conduct
Changing Pattern of Antitrust Enforcement
Antitrust and the New Economy
Monopolization and Attempts at Monopolization
Market Definition and Microeconomic Analysis
Market Power
Measures of Market Concentration
Areeda and Turner’s Marginal Cost Rule of Predatory Pricing
Summary
References
CHAPTER 12: Economics of Punitive Damages
Evolving Position of the U.S. Supreme Court on Punitive Damages
Frequency of Punitive Damages
Frequency of Punitive Damages and the Shadow Effect of Punitive Damages
Purposes of Punitive Damages
Compensatory Versus Punitive Damages
Criminal Penalties and Punitive Damages in Civil Lawsuits
Punishment of Corporations and Corporate Governance
Spillover Effects and Punishment of Corporations
Deterrence Theory and the Changing Litigation Environment
Deterrence and Regulatory Processes
Typical Financial Measures Used in the Determination of Punitive Damages
Net Worth
Market Capitalization
Uncertain Litigation Environment
Summary
References
Index
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