So Sue Me! The cross section of stock returns related to patent infringement allegations

Fred Bereskin, Po-Hsuan Hsu, William Latham and Huijun Wang

Journal of Banking & Finance, 2023, vol. 148, issue C

Abstract: Using patent lawsuit data from 2000 to 2014, we find that a stock portfolio consisting of alleged patent infringers (i.e., firms sued for patent infringement) provides significantly higher stock returns (between 0.48% to 0.61% per month) in the following year compared to other firms with similar characteristics. In contrast, plaintiff firms’ subsequent stock returns are not significantly different from comparable firms’ returns. We examine several possible explanations for this pattern, including pessimism-driven mispricing, exposure to unknown systematic risk, cash holdings, and financial constraints. Our evidence supports the explanation based on pessimism-driven mispricing.

Keywords: Patent litigation; Stock returns; Mispricing; Pessimism; Return predictability (search for similar items in EconPapers)
JEL-codes: G12 G14 O34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:148:y:2023:i:c:s037842662200320x

DOI: 10.1016/j.jbankfin.2022.106740

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