Class Action Spillover Effects on Joint Venture Partners

64 Pages Posted: 23 Feb 2018 Last revised: 4 May 2021

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: May 2, 2021

Abstract

Firms exhibit a US$106MM average market capitalization decline when a Securities Class Action lawsuit against their joint venture partner is announced. After their partner’s lawsuit, their own probability of facing similar litigation increases from 4.12% to 7.52%. Such litigation is 1.3 times more likely for every common monitor (auditor, institutional blockholder, or analyst) non-sued venture firms share with their sued partner. Other spillovers to non-sued venture firms substantially affect their financial reporting practices, their investment policies, and their assessment by both analysts and auditors. While these venture firms are not named in their partner’s complaint, they suffer non-trivial spillover effects.

Keywords: Securities Class Action lawsuits, Joint ventures; Spillover effects; Auditors; Analysts; Blockholders

JEL Classification: D82, G30, H26, K22, K41, M41

Suggested Citation

Fich, Eliezer M. and Gordon, Rachel and Yore, Adam S., Class Action Spillover Effects on Joint Venture Partners (May 2, 2021). 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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