Tax on Success: Technological Innovation and Shareholder Litigation
Successful technological innovation leads to more shareholder litigation. We establish this fact using data on securities class action lawsuits against U.S. corporations between 1996 and 2010, using the private economic value of a company's newly granted patents as a measure of innovative success. The increase in litigation is not due to more fraud being committed, but due to an increased propensity to litigate against successful innovators. Our findings are the first to show that successful innovation comes with a substantial implicit tax in the form of socially wasteful shareholder litigation.