Federal Tax Law Trumps Indian Canon

PurposeThe purpose of this paper is to determine the impact of the Supreme Court’s ruling that POM Wonderful could sue Coca-Cola, a competitor, for misrepresentation of their products. This decision has the potential to alter the legal environment for soft drink and food processing firms.Design/methodology/approachThe author conducted an event study of the shareholder value effects of the court decision. The analysis estimates the market responses to the decisions. To control the effects of market-wide fluctuations, the author uses two alternative models of the returns generating process to calculate abnormal returns, the capital asset pricing model (CAPM) and the Fama-French 3-factor models.FindingsThe author hypothesizes that soft drink firms will be negatively impacted by the Supreme Court’s decision, because it may limit their ability to market beverages with a low percentage of expensive juices. Consistent with this argument, the author finds that the stock prices of publicly traded soft drink firms reacted negatively to the announcement of the Supreme Court’s decision. The author also hypothesizes that there may be a spillover effect to food processing firms. These firms may also be at risk to being sued by competitors for exaggerated claims. Contrary to this argument, the author finds no spillover effect to other types of food processing firms. Thus, the decision did leave an aftertaste for the soft drink industry but not the food processing industry.Originality/valueThis study is the first to examine the impact of the right to sue competitors in the food industry for misrepresentation of products.

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An End User Perspective: The Impact of FSMA on Restaurants

Johnson

2017

Cornell Hospitality Quarterly

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On January 4, 2011, President Obama signed into law the Food Safety Modernization Act (FSMA or P.L. 111-353). This act may be the most far-reaching food safety legislation since the Food, Drug and Cosmetics Act (FDCA) of 1938. FSMA aims to ensure that the U.S. food supply is safe by shifting the focus of regulation from contamination response to prevention. This legislation imposes administrative costs on the food supply chain in the United States by requiring additional record keeping and safety procedures. Previous research has shown that the value of food processing, wholesale and grocery firms was reduced by the passage of this legislation. We hypothesize that the negative value effects caused by the legislation may be partially passed on to end users of food products, specifically, restaurants. Consistent with this hypothesis, we find that passage of FSMA reduced the market value of publicly traded restaurants by approximately 5%. This result is roughly one half of the impact borne by other firms in the food supply chain. That is, we find evidence that a portion of the supply chain costs of FSMA are passed on to restaurant firms and possibly other end users such as consumers. We conclude that federal legislation that is not specifically directed at the hospitality industry may still have significant effects for hospitality firms.

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Federal Tax Law Trumps Indian Canon

Cited by 4 publications

References 16 publications

A review of research into drivers of firm value through event studies in tourism and hospitality: Launching the Annals of Tourism Research curated collection on drivers of firm value through event studies in tourism and hospitality

A review of research into drivers of firm value through event studies in tourism and hospitality: Launching the Annals of Tourism Research curated collection on drivers of firm value through event studies in tourism and hospitality

Did POM Wonderful leave an aftertaste?

An End User Perspective: The Impact of FSMA on Restaurants

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