Taxing Successful Innovation: The Hidden Cost of Meritless Class Action Lawsuits

49 Pages Posted: 22 Mar 2018  

Elisabeth Kempf

University of Chicago - Booth School of Business

Oliver G. Spalt

Tilburg University - Department of Finance

Date Written: March 19, 2018

Abstract

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

Kempf, Elisabeth and Spalt, Oliver G., Taxing Successful Innovation: The Hidden Cost of Meritless Class Action Lawsuits (March 19, 2018). Available at SSRN: https://ssrn.com/abstract=3143690 or http://dx.doi.org/10.2139/ssrn.3143690

Elisabeth Kempf

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 (Contact Author)

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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