Litigating Innovation: Evidence from Securities Class Action Lawsuits
84 Pages Posted: 22 Mar 2018 Last revised: 2 Jan 2020
Date Written: December 9, 2019
Low-quality securities class action lawsuits disproportionally target firms with valuable innovation output and lead to substantial shareholder-value losses. We establish this fact using data on class action lawsuits between 1996 and 2011 and the value of newly granted patents as a measure of valuable innovation output. Our results challenge the widely-held view that greater failure propensity of innovative firms drives their litigation risk. Instead, our findings suggest that valuable innovation output makes a firm an attractive litigation target. Our results support the view that the class action litigation system may have adverse effects on the competitiveness of the U.S. economy.
Keywords: Corporate Governance; Law and Economics; Innovation; Patents; Shareholder Litigation; Class Action Lawsuit
JEL Classification: G38, K22, K41, O31, O32
Suggested Citation: Suggested Citation