Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits

Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits

Oliver Spalt, Elisabeth Kempf

Series number :

Serial Number: 
614/2019

Date posted :

July 12 2019

Last revised :

October 05 2020
SSRN Share

Keywords

  • Corporate governance • 
  • law and economics • 
  • innovation • 
  • Patents • 
  • shareholder litigation • 
  • Class Action Lawsuit

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.

Authors

Real name:
Elisabeth Kempf