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Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits

Author

Listed:
  • 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)

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.

Suggested Citation

  • Elisabeth Kempf & Oliver Spalt, 2023. "Attracting the Sharks: Corporate Innovation and Securities Class Action Lawsuits," Management Science, INFORMS, vol. 69(3), pages 1805-1834, March.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:3:p:1805-1834
    DOI: 10.1287/mnsc.2022.4388
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    References listed on IDEAS

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