Defendant Cash Holdings in Patent Litigation: The Impact on Shareholder Value
64 Pages Posted: 3 Oct 2014 Last revised: 26 Sep 2015
Date Written: September 26, 2015
We explore the importance of cash for shaping rivalry outside the product domain by studying its implications for firms defending against patent litigation by rivals. War chests of cash can make firms more formidable targets, reducing rivals' expected gains from litigation. However, cash holdings have agency costs and carry the risk of allowing value-destroying litigation spending. We find that while defendant cash holdings reduce plaintiffs' abnormal returns from litigation, they also reduce defendants' own abnormal returns and result in greater joint loss of shareholder value for both sides. In addition, we find that defendant cash holdings are associated with cases progressing to later and more expensive stages of litigation.
Keywords: Patent litigation, shareholder value, rivalry, cash holdings, agency cost, financial constraint
JEL Classification: G30, G32, O34
Suggested Citation: Suggested Citation