Litigating Innovation: Evidence from Securities Class Action Lawsuits

53 Pages Posted: 22 Mar 2018 Last revised: 11 Jun 2018

Elisabeth Kempf

University of Chicago - Booth School of Business

Oliver G. Spalt

Tilburg University - Department of Finance

Date Written: June 1, 2018

Abstract

Low-quality securities class action lawsuits disproportionally target fi rms with valuable innovation. We establish this fact using data on lawsuits against U.S. corporations between 1996 and 2011 and the private economic value of a rm's newly granted patents as a measure of valuable innovation. We fi nd that securities class actions impose a substantial implicit "tax" on highly innovative firms. Regarding the channel, our findings suggest that changes in investment opportunities and corporate disclosure induced by the innovation make successful innovators attractive targets of low-quality litigation. Overall, our results provide new evidence consistent with the view that the current class action litigation system has adverse effects on the competitiveness of the U.S. economy.

Keywords: Innovation, Patents, Class Action Lawsuit, Shareholder Litigation, Corporate Governance, Law and Economics

JEL Classification: G38, K22, K41, O31, O32

Suggested Citation

Kempf, Elisabeth and Spalt, Oliver G., Litigating Innovation: Evidence from Securities Class Action Lawsuits (June 1, 2018). Available at SSRN: https://ssrn.com/abstract=3143690 or http://dx.doi.org/10.2139/ssrn.3143690

Elisabeth Kempf (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.chicagobooth.edu/faculty/directory/k/elisabeth-kempf

Oliver G. Spalt

Tilburg University - Department of Finance ( email )

Department of Finance
Tilburg University
Tilburg, 5000 LE
Netherlands
+31 13 466 3545 (Phone)

HOME PAGE: http://www.oliverspalt.com

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