Taxing Successful Innovation: The Hidden Cost of Meritless Class Action Lawsuits
49 Pages Posted: 22 Mar 2018
Date Written: March 19, 2018
Meritless securities class action lawsuits disproportionally target firms with successful innovations. We establish this fact using data on securities class action lawsuits against U.S. corporations between 1996 and 2011 and the private economic value of a firm's newly granted patents as a measure of innovative success. Our findings suggest that the U.S. securities class action system imposes a substantial implicit "tax" on highly innovative firms, thereby reducing incentives to innovate ex ante. Changes in investment opportunities and corporate disclosure induced by the innovation appear to make successful innovators attractive litigation targets.
Keywords: Innovation, Patents, Class Action Lawsuit, Shareholder Litigation, Law and Economics
JEL Classification: G38, K22, K41, O31, O32
Suggested Citation: Suggested Citation