Class Action Spillover Effects on Joint Venture Partners

37 Pages Posted: 23 Feb 2018 Last revised: 22 Jun 2018

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: April 24, 2018

Abstract

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

Fich, Eliezer M. and Gordon, Rachel and Yore, Adam S., Class Action Spillover Effects on Joint Venture Partners (April 24, 2018). 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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