Class Action Spillover Effects on Joint Venture Partners

50 Pages Posted: 23 Feb 2018 Last revised: 24 Sep 2019

See all articles by Eliezer M. Fich

Eliezer M. Fich

Drexel University - Department of Finance

Rachel Gordon

Towson University

Adam S. Yore

University of Missouri at Columbia - Department of Finance

Date Written: September 18, 2019

Abstract

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

Fich, Eliezer M. and Gordon, Rachel and Yore, Adam S., Class Action Spillover Effects on Joint Venture Partners (September 18, 2019). Available at SSRN: https://ssrn.com/abstract=3122603 or http://dx.doi.org/10.2139/ssrn.3122603

Eliezer M. Fich

Drexel University - Department of Finance ( email )

LeBow College of Business
3220 Market Street – 11th Floor
Philadelphia, PA 19104
(215) 895-2304 (Phone)

Rachel Gordon (Contact Author)

Towson University ( email )

8000 York Road, ST 100A
Towson, MD 21204
United States

Adam S. Yore

University of Missouri at Columbia - Department of Finance ( email )

403 Cornell Hall
Columbia, MO 65211
United States
573-884-1446 (Phone)

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