Abstract

http://ssrn.com/abstract=2439216
 


 



Protection of Trade Secrets and Capital Structure Decisions


Sandy Klasa


University of Arizona - Department of Finance

Hernan Ortiz-Molina


University of British Columbia (UBC) - Sauder School of Business

Matthew A. Serfling


University of Arizona - Department of Finance

Shweta Srinivasan


University of Arizona - Department of Finance

November 8, 2014


Abstract:     
We study whether a firm’s capital structure decisions are affected by the risk that its product market rivals could gain access to its “trade secrets.” Our tests exploit the staggered recognition of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts as an exogenous event that increases the protection of a firm’s trade secrets by preventing the firm’s workers who have knowledge of its trade secrets from working for a rival firm. We find that firms increase their financial leverage after courts in their state of location recognize the IDD, especially firms in more competitive industries, with more workers who know trade secrets, or that face a greater ex-ante risk of losing key employees to rivals. Also, firms’ borrowing costs decrease after the recognition of the IDD, implying that credit markets price the risk that a firm’s rivals could obtain its trade secrets. Finally, firms experience gains in market share following the recognition of the IDD in their state. Overall, our results imply that the risk of losing intellectual property to rivals is an important competitive threat that leads firms to choose more conservative capital structures.

Number of Pages in PDF File: 63

Keywords: capital structure, trade secrets, intellectual property, product market competition

JEL Classification: G31, G32, G33, J60, K31, L10, O34

working papers series





Download This Paper

Date posted: May 21, 2014 ; Last revised: November 8, 2014

Suggested Citation

Klasa, Sandy and Ortiz-Molina, Hernan and Serfling, Matthew A. and Srinivasan, Shweta, Protection of Trade Secrets and Capital Structure Decisions (November 8, 2014). Available at SSRN: http://ssrn.com/abstract=2439216 or http://dx.doi.org/10.2139/ssrn.2439216

Contact Information

Sandy Klasa (Contact Author)
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-8761 (Phone)
Hernan Ortiz-Molina
University of British Columbia (UBC) - Sauder School of Business ( email )
2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-6095 (Phone)
604-822-4695 (Fax)
Matthew A. Serfling
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
Shweta Srinivasan
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
Feedback to SSRN


Paper statistics
Abstract Views: 376
Downloads: 115
Download Rank: 147,329

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.312 seconds