So Sue Me! Patent Litigation and the Cross-section of Stock Returns

51 Pages Posted: 21 Dec 2017 Last revised: 2 Dec 2018

See all articles by Frederick L. Bereskin

Frederick L. Bereskin

University of Missouri

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

William R. Latham

University of Delaware - Department of Economics

Huijun Wang

University of Melbourne

Date Written: December 1, 2018

Abstract

Using comprehensive patent lawsuit data from 2000 to 2014, we find that a stock portfolio consisting of firms involved in patent lawsuits as either plaintiffs or defendants provides significantly positive returns and risk-adjusted alphas (between 0.56% to 1.02% per month) in the following year. We propose and examine several possible explanations for this pattern, including industry heterogeneity, unknown or unspecified systematic risk, financial constraints, cash-driven lawsuits, and undervaluation of the benefits associated with patent litigation. Further evidence based on firms’ future profitability and competition, as well as information delay, suggests that the positive association between patent litigation and stock returns can be attributed to investors’ undervaluation of potential benefits related to patent litigation.

Keywords: Patent Litigation, Stock Returns, Information Delay, Underpricing

JEL Classification: G11, G14, O34

Suggested Citation

Bereskin, Frederick L. and Hsu, Po-Hsuan and Latham, William R. and Wang, Huijun, So Sue Me! Patent Litigation and the Cross-section of Stock Returns (December 1, 2018). 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

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

University of Melbourne

198 Berkeley Street
Carlton, Victoria 3053
Australia

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