Non-compete agreements, innovation value and efficiency

Zhaozhao He

Journal of Corporate Finance, 2025, vol. 90, issue C

Abstract: Non-compete agreements help protect business investments by restricting worker mobility, thereby increasing firm incentives to invest. Yet, they could damage the efficacy of such investments by reducing employee incentives and hampering knowledge flows. Exploiting staggered reforms of state non-compete enforcement, I find that patents filed after an increased enforceability are less valuable and exploratory despite no less R&D spending. Inventors whose job prospects are more jeopardized, in a weaker bargaining position, and having greater incentives to switch firms produce patents with greater valuation losses. These results imply that labor allocative inefficiency owing to mobility restrictions could compromise value creation from real investments.

Keywords: Allocative inefficiency; Innovation motivation; Inventor mobility; Non-competes; Patent value (search for similar items in EconPapers)
JEL-codes: D61 G30 J24 J31 J41 J61 K31 O34 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:90:y:2025:i:c:s0929119924001603

DOI: 10.1016/j.jcorpfin.2024.102698

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