The Revictimization of Companies by the Stock Market Who Report Trade Secret Theft Under the Economic Espionage Act

29 Pages Posted: 1 Apr 2002

See all articles by Chris Carr

Chris Carr

California Polytechnic State University, San Luis Obispo

Larry R. Gorman

California Polytechnic State University

Abstract

In 1996 Congress passed the Economic Espionage Act (EEA). One of the concerns surrounding the passage of the EEA was that publicly traded companies would be hesitant to report trade secret theft to the government for fear that doing so would adversely impact their stock prices. This article investigates whether that concern has merit.

Using event study methodology, we found that the market does, in fact, negatively react to the reporting of trade secret theft under the EEA. Stated differently, these companies are "revictimized" by going public with their loss. Further, we found a strong statistical link between the value of the trade secret and subsequent decreases in stock value (i.e., the higher the value of the trade secret the greater the decrease in stock price). These findings have important implications regarding the efficacy of the EEA and future amendments. They also have important implications for corporate legal counsel, CEOs, managers, and shareholders.

Keywords: Trade secrets, trade secret theft, economic espionage, competitive intelligence, securities, stock prices, stock value, event study, intellectual property, trade secret misappropriation

JEL Classification: G30, G34, G38, K1, K14, K2, K22, K4, K42

Suggested Citation

Carr, Chris and Gorman, Larry, The Revictimization of Companies by the Stock Market Who Report Trade Secret Theft Under the Economic Espionage Act. Available at SSRN: https://ssrn.com/abstract=299436 or http://dx.doi.org/10.2139/ssrn.299436

Chris Carr (Contact Author)

California Polytechnic State University, San Luis Obispo ( email )

Orfalea College of Business
1 Grand Avenue
San Luis Obispo, CA 93407
United States
805-756-2657 (Phone)
805-756-0110 (Fax)

HOME PAGE: http://www.cob.calpoly.edu/directory/profile/chris-carr/

Larry Gorman

California Polytechnic State University ( email )

College of Business
Department of Finance
San Luis Obispo, CA 93407
United States
805-756-1312 (Phone)
805-756-1473 (Fax)

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