Class Action Spillover Effects on Joint Venture Partners
37 Pages Posted: 23 Feb 2018 Last revised: 22 Jun 2018
Date Written: April 24, 2018
We study joint ventures where one partner faces a shareholder class action lawsuit. On average, non-sued partners with equal stakes in these ventures earn a 0.6% negative abnormal stock return when the lawsuit against their partner is announced. Once a joint venture partner is sued, the litigation risk for its non-sued partners increases, non-sued partners spend less on investments and acquisitions and also exhibit significant declines in their volatility of stock returns, cash flows, and assets. Although non-sued joint venture partners are not named in the original complaint, they suffer considerable spillover effects that impair their valuation and growth prospects.
Keywords: Class action; Lawsuits, Joint venture; Spillover effects
JEL Classification: G33; G34; L22
Suggested Citation: Suggested Citation