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Protection of Trade Secrets and Capital Structure Decisions

88 Pages Posted: 21 May 2014 Last revised: 15 Jun 2017

Sandy Klasa

University of Arizona - Department of Finance

Hernan Ortiz-Molina

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

Matthew Serfling

University of Tennessee

Shweta Srinivasan

SUNY Binghamton; University of Arizona - Department of Finance

Date Written: June 14, 2017

Abstract

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 U.S. 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.

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

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

Suggested Citation

Klasa, Sandy and Ortiz-Molina, Hernan and Serfling, Matthew and Srinivasan, Shweta, Protection of Trade Secrets and Capital Structure Decisions (June 14, 2017). Available at SSRN: https://ssrn.com/abstract=2439216 or http://dx.doi.org/10.2139/ssrn.2439216

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 Serfling

University of Tennessee ( email )

Haslam College of Business
Knoxville, TN 37996
United States
865-974-1952 (Phone)

Shweta Srinivasan

SUNY Binghamton ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States

HOME PAGE: http://www.shwetasrinivasan.com

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

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