Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits

65 Pages Posted: 22 Mar 2018 Last revised: 5 Oct 2020

See all articles by Elisabeth Kempf

Elisabeth Kempf

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR)

Oliver G. Spalt

University of Mannheim - Business School; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: September 26, 2020

Abstract

This paper provides novel evidence suggesting that securities class action lawsuits, a central pillar of the U.S. litigation and corporate governance system, can constitute an obstacle to valuable corporate innovation. We first establish that valuable innovation output makes firms particularly vulnerable to costly low-quality class action litigation. Exploiting judge turnover in federal courts, we then show that changes in class action litigation risk affect the value and number of patents filed, suggesting firms take into account that risk in their innovation decisions. Our results challenge the widely held view that greater failure propensity of innovative firms drives their litigation risk.

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

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

Suggested Citation

Kempf, Elisabeth and Spalt, Oliver G., Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits (September 26, 2020). European Corporate Governance Institute - Finance Working Paper No. 614/2019, 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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Oliver G. Spalt

University of Mannheim - Business School ( email )

L5, 5
Mannheim, 68131
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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