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

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  • Bereskin, Fred
  • Hsu, Po-Hsuan
  • Latham, William
  • Wang, Huijun
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.

Suggested Citation

  • Bereskin, Fred & Hsu, Po-Hsuan & Latham, William & Wang, Huijun, 2023. "So Sue Me! The cross section of stock returns related to patent infringement allegations," Journal of Banking & Finance, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:jbfina:v:148:y:2023:i:c:s037842662200320x
    DOI: 10.1016/j.jbankfin.2022.106740
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    Cited by:

    1. Hui Deng & Lingyun Xiong & Lijuan Xiao, 2024. "Does patent infringement litigation affect stock price crash risk? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 3-39, March.

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    More about this item

    Keywords

    Patent litigation; Stock returns; Mispricing; Pessimism; Return predictability;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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