Non-US public companies sued in the US are more likely to lose than their American counterparts of similar size facing similar claims, a study (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=932690) of 3,000 corporate defendants has found.

The mere announcement of a US lawsuit also hits non-US companies far harder.

On average, their value dropped $930,000 on the day of the announcement compared with $366,000 for US firms, according to the study by Utpal Bhattacharya, a finance professor at Indiana University.

The study, which will be published next year, looked at lawsuits filed in federal courts between 1995 and 2000 and followed the cases through to final resolution.

The apparent “home court advantage” revealed in the study may heighten foreign companies’ concerns over their ability to do business in the US.

Fears of protectionism in the US have increased due to public opposition to foreign takeovers of US companies and rising hostility towards the outsourcing of US jobs to developing countries.

“If it’s a foreign firm that gets sued, they lose far more often and they lose higher dollar amounts,” Mr Bhattacharya said. “Foreign firms don’t think they get a fair shake in US courts.”?

He said the companies studied were spread across the globe.

The study, co-authored by Bruce Haslem and Neal Galpin, also found more non-US firms were becoming entangled in the US legal system.

In 1995, non-US firms made up 20 per cent of the public company defendants. By the end of the study period, their share had risen to 29 per cent.

Some non-US companies may choose to fight lawsuits that US companies would opt to settle.

“Even if you have US legal counsel, the companies back home don’t understand the crazy things that go on here,” said Tom Niles, vice-chairman of the United States Council for International Business.

Last year, US lawmakers threatened to block the $18.5bn bid by China’s CNOOC (http://mwprices.ft.com/custom/ft2-com/html-quotechartnews.asp?FTSite=FTCOM&q=883&searchtype&expanded=&countrycode=hk&s2=hk&symb=883&company=NEW> for Californian oil group Unocal, which was subsequently bought by Chevron <http://mwprices.ft.com/custom/ft2-com/html-quotechartnews.asp?FTSite=FTCOM&q=CVX&searchtype&expanded=&countrycode=us&s2=us&symb=CVX&company=NEW) .
This week, Dubai Ports World agreed to sell to AIG the US ports bought as part of February’s acquisition of P&O – a divestment forced upon the group by Congressional opposition.

The study “gives empirical backing to the idea that the US legal system is broken,” said Linda Kelly, vice-president of the US Chamber of Congress’s Institute for Legal Reform.

“It suggests a need for Congress to see what they can do to improve our global competitiveness from a legal standpoint,” she said.