Shareholder Litigation and Corporate Innovation

Chen Lin, Sibo Liu () and Gustavo Manso ()
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Sibo Liu: Department of Finance and Decision Sciences, Hong Kong Baptist University, Hong Kong
Gustavo Manso: Haas School of Business, University of California, Berkeley, Berkeley, California 94720

Management Science, 2021, vol. 67, issue 6, 3346-3367

Abstract: We investigate whether and to what extent shareholder litigation shapes corporate innovation by examining the staggered adoption of universal demand laws in 23 states from 1989 to 2005. These laws impose obstacles against shareholders filing derivative lawsuits, thereby significantly reducing managers’ litigation risk. Using a difference-in-differences design and a matched sample, we find that, following the passage of the laws, firms invested more in research and development, produced more patents in new technological classes and more patents based on new knowledge, generated more patents with significant impacts, and achieved higher patent value. Our findings suggest that the external pressure imposed by shareholder litigation discourages managers from engaging in explorative innovation activities.

Keywords: shareholder litigation; innovation; patents; derivative lawsuit (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:6:p:3346-3367

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