Litigating Innovation: Evidence from Securities Class Action Lawsuits
53 Pages Posted: 22 Mar 2018 Last revised: 21 Sep 2018
Date Written: June 1, 2018
Low-quality securities class action lawsuits disproportionally target firms 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 find 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: Suggested Citation