Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits

Elisabeth Kempf and Oliver G. Spalt

No 14358, CEPR Discussion Papers from Centre for Economic Policy Research

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; Class action lawsuit (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-law and nep-sbm
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