Attracting the sharks: Corporate innovation and securities class action lawsuits


Kempf, Elisabeth ; Spalt, Oliver



Document Type: Article
Year of publication: 2021
The title of a journal, publication series: Management Science
Volume: tba
Issue number: tba
Page range: tba
Place of publication: Cantonsville, MD
Publishing house: INFORMS
ISSN: 0025-1909 , 1526-5501
Publication language: English
Institution: Business School > ABWL, Finanzwirtschaft u. Finanzmarktinstitutionen (Spalt 2019-)
Subject: 330 Economics
Classification: JEL: G38, K22, K41, O31, O32,
Keywords (English): corporate governance , law and economics , innovation , patents , shareholder litigation , class action lawsuit
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.

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