Protection of trade secrets and capital structure decisions

Sandy Klasa, Hernán Ortiz-Molina, Matthew Serfling and Shweta Srinivasan

Journal of Financial Economics, 2018, vol. 128, issue 2, 266-286

Abstract: Firms strategically choose more conservative capital structures when they face greater competitive threats stemming from the potential loss of their trade secrets to rivals. Following the recognition of the Inevitable Disclosure Doctrine by US state courts, which exogenously increases the protection of a firm's trade secrets by reducing the mobility of its workers who know its secrets to rivals, the firm increases its leverage relative to unaffected rivals. The effect is stronger for firms with a greater risk of losing key employees to rivals, for those facing financially stronger rivals, and for those in industries where competition is more intense.

Keywords: Capital structure; Trade secrets; Intellectual property; Competitive threats (search for similar items in EconPapers)
JEL-codes: G31 G32 J60 O34 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (96)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:2:p:266-286

DOI: 10.1016/j.jfineco.2018.02.008

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