Trade Secrets Protection and Antitakeover Provisions

53 Pages Posted: 24 Apr 2018 Last revised: 28 Feb 2019

See all articles by Aiyesha Dey

Aiyesha Dey

Harvard Business School

Joshua T. White

Vanderbilt University - Finance

Date Written: February 25, 2019

Abstract

We examine whether and why managers strengthen antitakeover provisions when facing an increased threat of being acquired. Our tests exploit the Inevitable Disclosure Doctrine (IDD), which exogenously decreases knowledge-worker mobility, thereby increasing firms' likelihood of being acquired. Managers respond by increasing specific antitakeover provisions, especially when employees have greater ex-ante mobility. Firms that strengthen antitakeovers experience a reduced takeover likelihood. Cross-sectional tests indicate that firms with higher innovative activity increase antitakeovers more after IDD, and those that do, experience greater ex-post innovation outcomes. Our results are consistent with managers increasing antitakeovers to protect long-term innovation output rather than private benefits.

Keywords: Inevitable Disclosure Doctrine, antitakeover provisions, takeover likelihood, innovation, trade secrets

JEL Classification: G34, G38, K22, L14

Suggested Citation

Dey, Aiyesha and White, Joshua T., Trade Secrets Protection and Antitakeover Provisions (February 25, 2019). Vanderbilt Owen Graduate School of Management Research Paper No. 3161661; Finance Down Under 2019 Building on the Best from the Cellars of Finance. Available at SSRN: https://ssrn.com/abstract=3161661 or http://dx.doi.org/10.2139/ssrn.3161661

Aiyesha Dey

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Joshua T. White (Contact Author)

Vanderbilt University - Finance ( email )

401 21st Avenue South
Nashville, TN 37203
United States

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