Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets

Abstract

This paper studies whether knowledge protection affects shareholder value and firms' investment in knowledge assets using the staggered adoptions and rejections of the inevitable disclosure doctrine (IDD) by U.S. state courts as exogenous changes in the level of knowledge protection. We find positive (negative) abnormal stock returns around the IDD adoption (rejection) day for firms headquartered in the state and uncover a positive IDD treatment effect on firms' investment in knowledge assets. Moreover, the effects on stock returns and knowledge assets investment are stronger in more knowledge-oriented industries and firms. Finally, enhancing knowledge protection does not discourage local entrepreneurial activity.

Data breaches and corporate liquidity management

“…This paper also adds new evidence to the law and finance literature. Specifically, our paper complements previous studies (e.g., Falato & Sim, 2014;He, 2018;Klasa et al, 2018;Qiu & Wang, 2018) that examine the impact of regulatory changes on corporate financial policies. While most of the explanations for corporate cash-holding policies focus on firm-specific factors, recent studies show that firms change their financial policies in response to regulatory changes.…”

The Impact of Restricting Labor Mobility on Corporate Investment and Entrepreneurship

“…In the context of theory of the firm, these findings support the argument that control rights over human capital are a critical component of firm boundaries, in the sense that they help determine whether investment opportunities are exploited within existing firms (manifesting as capital investment) or as new ventures (new firm entry) (Zingales 2000). (IDD), a judicial doctrine that restricts mobility for certain workers with access to trade secrets (Png and Samila 2013, Liu 2016, Qiu and Wang 2016. The contribution of this paper is the focus on the entrepreneurship-investment trade-off, and the use of LinkedIn data to provide detailed evidence on a much broader base of occupations and movement types than was previously possible.…”