School of Economics and Management Tsinghua U., China
This study examines how hedge fund activism influences the likelihood of target firms filing patent litigation. We theorize that managers may use patent litigation as a short-term tactic in response to the performance pressure and employment risk from hedge fund activists. By merging data on hedge fund activism and patent litigation in the US pharmaceutical industry, we find that hedge fund activism is positively associated with an increased likelihood of filing patent litigation. Additionally, patent lawsuits initiated under hedge fund pressure are more likely to be settled and resolved quickly than others. Our findings contribute to the literature on shareholder activism and patent litigation strategy, highlighting the role of external pressures in shaping firms’ time horizon of decisions.
