TY - JOUR
T1 - Protection of trade secrets and capital structure decisions
AU - Klasa, Sandy
AU - Ortiz-Molina, Hernán
AU - Serfling, Matthew
AU - Srinivasan, Shweta
N1 - Funding Information:
We thank our referee Laurent Frésard for helpful comments and suggestions. We are also grateful for comments from Rajesh Aggarwal, Nilanjan Basu, Jan Bena, Cesare Fracassi, Lorenzo Garlappi, Ron Giammarino, Jean Helwege, Jayant Kale, Kai Li, Lubo Litov, Neslihan Ozkan, Carolin Pflueger, Gordon Phillips, Berk Sensoy, Elena Simintzi, Philip Valta, Wei Wang, Ryan Williams, Toni Whited (the editor), Steven Xiao, and seminar participants at the University of Arizona, University of British Columbia, University of New South Wales, University of Sydney, Hong Kong University of Science & Technology, Laval University, Nanyang Technological University, National University of Singapore, Northeastern University, Universidad de Los Andes (Chile), and also participants at the One-Day Corporate Finance Conference (2013) at the University of Manchester, the Finance, Organizations, and Markets (FOM) research group meeting at the University of Southern California (2013), the Financial Intermediation Research Society (FIRS) Conference (2014), the University of Alberta Frontiers in Finance Conference (2014), the Northern Finance Association Conference (2014), the European Winter Finance Summit Conference (2015), the Western Finance Association Conference (2015), and the European Finance Association Conference (2015). We thank Robert Bird and John Knopf for sharing with us their state-level data on the strength of enforcement of noncompete agreements, and Tobias Berg for making his data on firms’ total cost of bank debt available on his website. We also appreciate the excellent research assistance provided by Maryam Fathollahi. Ortiz-Molina acknowledges the financial support from the Social Sciences and Humanities Research Council of Canada.
Publisher Copyright:
© 2018 Elsevier B.V.
Copyright:
Copyright 2018 Elsevier B.V., All rights reserved.
PY - 2018/5
Y1 - 2018/5
N2 - Firms strategically choose more conservative capital structures when they face greater competitive threats stemming from the potential loss of their trade secrets to rivals. Following the recognition of the Inevitable Disclosure Doctrine by US state courts, which exogenously increases the protection of a firm's trade secrets by reducing the mobility of its workers who know its secrets to rivals, the firm increases its leverage relative to unaffected rivals. The effect is stronger for firms with a greater risk of losing key employees to rivals, for those facing financially stronger rivals, and for those in industries where competition is more intense.
AB - Firms strategically choose more conservative capital structures when they face greater competitive threats stemming from the potential loss of their trade secrets to rivals. Following the recognition of the Inevitable Disclosure Doctrine by US state courts, which exogenously increases the protection of a firm's trade secrets by reducing the mobility of its workers who know its secrets to rivals, the firm increases its leverage relative to unaffected rivals. The effect is stronger for firms with a greater risk of losing key employees to rivals, for those facing financially stronger rivals, and for those in industries where competition is more intense.
KW - Capital structure
KW - Competitive threats
KW - Intellectual property
KW - Trade secrets
UR - http://www.scopus.com/inward/record.url?scp=85042860142&partnerID=8YFLogxK
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U2 - 10.1016/j.jfineco.2018.02.008
DO - 10.1016/j.jfineco.2018.02.008
M3 - Article
AN - SCOPUS:85042860142
VL - 128
SP - 266
EP - 286
JO - Journal of Financial Economics
JF - Journal of Financial Economics
SN - 0304-405X
IS - 2
ER -