Class Action Spillover Effects on Joint Venture Partners
50 Pages Posted: 23 Feb 2018 Last revised: 24 Sep 2019
Date Written: September 18, 2019
We study spillover effects arising in joint ventures where one firm is sued. Upon their partner’s lawsuit announcement, other firms in the relationship exhibit a US$106MM market capitalization decline. Those firms are 3.4% more likely to be subsequently sued and 2.4% more likely to confront similar charges. After their partner’s lawsuit, the other venture firms increase their cash reserves but decrease dividends, investment, acquisition spending, and disclosure quality. Moreover, their volatility of stock returns, cash flows, and assets also decline. Although these firms are not named in their partner’s complaint, they suffer spillover effects that impair their valuation and growth.
Keywords: Class action; Lawsuits, Joint venture; Spillover effects
JEL Classification: G33; G34; L22
Suggested Citation: Suggested Citation