Abstract
Internationally, news on patent infringement is often seen, and patent infringement law-suits affect stock prices. However, fewer studies have discussed how market reflects corporate value and impact of patent infringement lawsuit on investment returns when a patent infringement lawsuit occurs and the news is released. This study applied event study to discuss changes in information value of plaintiffs and defendants, and information value difference of different patent lawsuit sources in competitive environment. The empirical results showed that patent infringement lawsuits may cause negative perception of investors or insider shareholders. This event may become an arbitrage opportunity. Through five forces analysis, the lawsuits from various sources are bad news. Reverse correction is conducted after the event, and makes stock price rational. Thus, in Taiwan market, patent infringement lawsuit is negative news for plaintiff and defendant.
Highlights
In an information society, the global economy has witnessed the transition from industrial age to knowledge-based economy age
According to the definition of the Organization for Economic Cooperation and Development (OECD), knowledge-based economy is directly based on the production, distribution and use of knowledge and information
Past studies have explored the impact of patent infringement lawsuits of information industry and judgments on stock price volatility (Raghu et al 2008; Konchitchki, O’Leary 2011)
Summary
Past studies have explored the impact of patent infringement lawsuits of information industry and judgments on stock price volatility (Raghu et al 2008; Konchitchki, O’Leary 2011). From filing lawsuits for patent infringement to making the lawsuits publically known, information disclosure may affect financial market (Agarwal et al 2009; Chen, Chang 2010; Wagner, Cockburn 2010). Patents can enhance industrial competitiveness, but long-drawn litigation processes increase uncertainty This means that more investment risks can affect stock market. In this study, we examine the stock price impact of patent litigation, and adopt the viewpoint of industrial competitiveness, Porter’s Five Forces of Competitive Position Model (Porter 1980), to integrate patent development and financial economics through the empirical case in Taiwan.
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