Litigating Innovation: Evidence from Securities Class Action Lawsuits
60 Pages Posted: 22 Mar 2018 Last revised: 14 Dec 2018
Date Written: December 13, 2018
Low-quality securities class action lawsuits disproportionally target firms with valuable innovation output and impose a substantial implicit "tax'' on these firms. We establish this fact using data on 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 valuable innovation output. Our results challenge the widely-held view that it is the greater failure propensity of innovative firms that drives litigation risk. Instead, our findings suggest that valuable innovation output makes a firm an attractive litigation target. More broadly, our results provide new evidence to support the view that the current class action litigation system may have 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