Product Market Competition and Long-Term Firm Value: Evidence from Reverse Engineering Laws
80 Pages Posted: 22 Nov 2017 Last revised: 8 Oct 2018
Date Written: October 3, 2018
I analyze the value impact of product market competition (PMC) on long-term firm value. Using exogenous state adoption of anti-plug-mold statutes, and their subsequent invalidation, I causally show that decreased PMC generates economically and statistically significant long-term firm value, especially for firms at heightened risk of product imitation or with greater innovative ability. My findings are robust to an array of falsification tests directly aimed at ruling out the possibility of unobserved sources of local variation confounding the analysis and provide support for the view that a reduction in PMC leads to higher firm value by increasing innovation incentives.
Keywords: product market competition, firm value, reverse engineering, intellectual property protection, innovation, Anti-Plug-Mold statutes
JEL Classification: G32, K22, O31, O32, O34
Suggested Citation: Suggested Citation