Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits

Elisabeth Kempf () and Oliver Spalt ()
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Elisabeth Kempf: University of Chicago Booth School of Business, Chicago, Illinois 60637; Centre for Economic Policy and Research, London EC1V 0DX, United Kingdom; National Bureau of Economic Research, Cambridge, Massachusetts 02138
Oliver Spalt: Business School, University of Mannheim, 68131 Mannheim, Germany; European Corporate Governance Institute, 1000 Brussels, Belgium

Management Science, 2023, vol. 69, issue 3, 1805-1834

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. A new perspective we provide is that innovation success, not only innovation failure, can increase firms’ securities class action litigation risk.

Keywords: corporate governance; law and economics; innovation; patents; shareholder litigation (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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