How innovating firms manage knowledge leakage: A natural experiment on worker mobility

35 Pages Posted: 2 May 2018 Last revised: 4 May 2020

See all articles by Hyo Kang

Hyo Kang

Marshall School of Business, University of Southern California

Wyatt Lee

Rotman School of Management, University of Toronto

Date Written: April 20, 2020

Abstract

Innovating firms face a risk of knowledge leakage as their workers can exit employment to join competitors. We study worker mobility as the key mechanism through which firms decide on strategies to protect innovation outputs. Our empirical analysis exploits a 1998 court case decision whereby the California Courts of Appeal ruled that out-of-state non-compete agreements are not enforceable in California. Consequently, non-California firms faced a loophole in the enforcement of non-competes for their previously bound workers. When facing the higher mobility of existing workers, firms strategically increase patent filings as a means of knowledge protection. Further tests support our theoretical account that worker mobility plays a crucial role in patenting decisions. The importance of worker mobility and leakage-by-leaving problem has significant scholarly and managerial implications.

Keywords: innovation strategy, knowledge management, patents, worker mobility, out-of-state non-competes

JEL Classification: O32, J61, K31, G34

Suggested Citation

Kang, Hyo and Lee, Wyatt, How innovating firms manage knowledge leakage: A natural experiment on worker mobility (April 20, 2020). Available at SSRN: https://ssrn.com/abstract=3171829 or http://dx.doi.org/10.2139/ssrn.3171829

Hyo Kang (Contact Author)

Marshall School of Business, University of Southern California ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

HOME PAGE: http://hyokang.com

Wyatt Lee

Rotman School of Management, University of Toronto ( email )

105 St George St, Toronto, ON M5S 3E6
Toronto, Ontario M5S 3G8
Canada

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