Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets
FIRN Research Paper No. 2728108
56 Pages Posted: 5 Feb 2016 Last revised: 8 Jun 2017
Date Written: January 27, 2017
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.
Keywords: Knowledge Protection; Inevitable Disclosure Doctrine; Shareholder Value; Investment in Knowledge Assets
JEL Classification: K11, G14, G31
Suggested Citation: Suggested Citation