Abstract
Firms exhibit a US$106MM average market capitalization decline when a Securities Class Action lawsuit against their joint venture partner is announced. After their partner’s lawsuit, their own probability of facing similar litigation increases from 4.12% to 7.52%. Such litigation is 1.3 times more likely for every common monitor (auditor, institutional blockholder, or analyst) non-sued venture firms share with their sued partner. Other spillovers to non-sued venture firms substantially affect their financial reporting practices, their investment policies, and their assessment by both analysts and auditors. While these venture firms are not named in their partner’s complaint, they suffer non-trivial spillover effects.
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