Litigating Innovation: Evidence from Securities Class Action Lawsuits

75 Pages Posted: 22 Mar 2018 Last revised: 11 Jul 2019

See all articles by Elisabeth Kempf

Elisabeth Kempf

University of Chicago - Booth School of Business

Oliver G. Spalt

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

Date Written: February 1, 2019

Abstract

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

Kempf, Elisabeth and Spalt, Oliver G., Litigating Innovation: Evidence from Securities Class Action Lawsuits (February 1, 2019). 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

Oliver G. Spalt

University of Mannheim - Business School ( email )

L5, 5
Mannheim, 68131
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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