Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits
65 Pages Posted: 22 Mar 2018 Last revised: 5 Oct 2020
Date Written: September 26, 2020
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: Suggested Citation