Uniform Trade Secrets Act and Bank Loan Spreads: Evidence from Inventor Mobility and Corporate Innovation

Abstract

We examine whether and why the Uniform Trade Secrets Act (UTSA) affects the financing costs of innovative firms. Using the UTSA as an exogenous shock, we find that innovative firms are charged significantly lower loan spreads after the release of the UTSA, while non-innovative firms do not. This effect becomes more robust among states with higher investor mobility or firms with higher innovation activities. Moreover, when trade secrets are protected, innovative firms will likely obtain larger loan sizes and fewer collateral requirements. In addition, we find that stronger trade secrets protection benefits the efficiency and performance of innovative firms.

Keywords: Q51 Uniform Trade Secrets Act, innovative firms, loan spread, inventors, and innovative efficiency