Financial Analytics
Litigating Innovation: Evidence from Securities Class Action Lawsuits

Author(s):
Prof. Oliver Spalt, Elisabeth Kempf
Cooperation Partners:
Chair of Financial Markets and Financial Institutions
Description:
Low-quality securities class action lawsuits disproportionally target firms with valuable innovation output and lead to substantial shareholder-value losses. We establish this fact using data on class action lawsuits between 1996 and 2011 and the value of newly granted patents as a measure of valuable innovation output. Our results challenge the widely-held view that greater failure propensity of innovative firms drives their litigation risk. Instead, our findings suggest that valuable innovation output makes a firm an attractive litigation target. Our results support the view that the class action litigation system may have adverse effects on the competitiveness of the U.S. economy.
Why Does Size Matter For Bidder Announcement Returns?

Author(s):
Prof. Oliver Spalt, Christoph Schneider
Cooperation Partners:
Chair of Financial Markets and Financial Institutions
Description:
In the standard regression of bidder announcement returns (ACARs) on bidder size in US data from 1981-2014, the coefficient on bidder size is positive and significant (0.5, t = 3.9) when the target is a public firm, where the average ACAR is negative (−1.4%); but it is negative and significant (−1.2, t = −11.5) when the target is a non-public firm, where average ACAR is positive (1.4%). We show this pattern of flipping signs is general and predictable. These pervasive patterns in the data are important for understanding value creation in corporate takeovers: while bidder size is widely regarded to be a central determinant of bidder announcement returns, the patterns are at odds with all leading explanations in the recent M&A literature for why size matters. We offer a simple alternative model in which size is not a proxy. Instead size scales per-dollar value created (or destroyed) in a given deal.
Distracted Shareholders and Corporate Actions

Author(s):
Prof. Oliver Spalt, Elisabeth Kempf
Cooperation Partners:
Chair of Financial Markets and Financial Institutions
Description:
Investor attention matters for corporate actions. Our new identification approach constructs firm-level shareholder “distraction” measures, by exploiting exogenous shocks to unrelated parts of institutional shareholders’ portfolios. Firms with “distracted” shareholders are more likely to announce diversifying, value-destroying, acquisitions. They are also more likely to grant opportunistically timed CEO stock options, more likely to cut dividends, and less likely to fire their CEO for bad performance. Firms with distracted shareholders have abnormally low stock returns. Combined, these patterns are consistent with a model in which the unrelated shock shifts investor attention, leading to a temporary loosening of monitoring constraints.
Mutual Fund Shareholder Letters: Flows, Performance, and Managerial Behavior

Author(s):
Alexandra Niessen-Ruenzi, Stefan Ruenzi
Cooperation Partners:
Chair of Corporate Governance and Chair of International Finance
Description:
Fund companies regularly send shareholder letters to their investors. We use textual analysis to investigate whether these letters’ writing style influences fund flows and whether it predicts performance and investment styles. Fund investors react to the tone and content of shareholder letters: A less negative tone leads to higher netflows. Thus, fund companies can use shareholder letters as a tactical instrument to influence flows. However, at the same time, a dishonest communication that is not consistent with the fund’s actual performance decreases flows. A positive writing style predicts higher idiosyncratic risk as well as more style bets, while there is no consistent predictive power for future performance.