So Sue Me! The Cross Section of Stock Returns Related to Patent Infringement Allegations

45 Pages Posted: 21 Dec 2017 Last revised: 16 Dec 2022

See all articles by Fred Bereskin

Fred Bereskin

University of Missouri

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance; National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

William R. Latham

University of Delaware - Department of Economics

Huijun Wang

Auburn University

Date Written: November 21, 2022

Abstract

Using patent lawsuit data from 2000 to 2014, we find that a stock portfolio consisting of alleged patent infringers (i.e., firms sued for patent infringement) provides significantly higher stock returns (between 0.48% to 0.61% per month) in the following year compared to other firms with similar characteristics. In contrast, plaintiff firms’ subsequent stock returns are not significantly different from comparable firms’ returns. We examine several possible explanations for this pattern, including pessimism-driven mispricing, exposure to unknown systematic risk, cash holdings, and financial constraints. Our evidence supports the explanation based on pessimism-driven mispricing.

Keywords: Patent litigation; stock returns; mispricing; pessimism; return predictability

JEL Classification: G12, G14, O34

Suggested Citation

Bereskin, Frederick L. and Hsu, Po-Hsuan and Latham, William R. and Wang, Huijun, So Sue Me! The Cross Section of Stock Returns Related to Patent Infringement Allegations (November 21, 2022). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3090551 or http://dx.doi.org/10.2139/ssrn.3090551

Frederick L. Bereskin (Contact Author)

University of Missouri ( email )

Columbia, MO 65203
United States

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

William R. Latham

University of Delaware - Department of Economics ( email )

Newark, DE 19716
United States
302-731-1464 (Phone)
302-831-6968 (Fax)

Huijun Wang

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

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