DP14358 Litigating Innovation: Evidence from Securities Class Action Lawsuits

Author(s):	Elisabeth Kempf, Oliver G. Spalt
Publication Date:	January 2020
Keyword(s):	Class Action Lawsuit, corporate governance, Innovation, law and economics, patents, Shareholder Litigation
JEL(s):
Programme Areas:	Financial Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=14358

Low-quality securities class action lawsuits disproportionally target firms with valuable innovation output and lead to substantial shareholder-value losses. We establish this fact using data on class action lawsuits between 1996 and 2011 and the value of newly granted patents as a measure of valuable innovation output. Our results challenge the widely-held view that greater failure propensity of innovative firms drives their litigation risk. Instead, our findings suggest that valuable innovation output makes a firm an attractive litigation target. Our results support the view that the class action litigation system may have adverse effects on the competitiveness of the U.S. economy.