Shareholder Litigation and Corporate Innovation

Chen Lin, Sibo Liu, Gustavo Manso

    Research output: Contribution to journalJournal articlepeer-review

    62 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)3346-3367
    Number of pages22
    JournalManagement Science
    Volume67
    Issue number6
    Early online date5 Oct 2020
    DOIs
    Publication statusPublished - Jun 2021

    User-Defined Keywords

    • shareholder litigation
    • innovation
    • patents
    • derivative lawsuit

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