Does protection of trade secrets matter for firms’ access to external capital?

Mohamed Shaker Ahmed, Layal Isskandarani, Taimur Sharif and Mohammad Zoynul Abedin

International Review of Economics & Finance, 2025, vol. 101, issue C

Abstract: We investigate how protection of trade secrets affects firms’ access to external finance. In our paper, we use the US state court recognition of the Inevitable Disclosure Doctrine (hereafter IDD) to gain exogenous variation in employee mobility, which protects trade secrets and prevents knowledge spillover to competitors. We also employ a sample of all non-financial constituents of the S&P 500 between 2005 and 2020. Overall, we find that firms in states adopting the IDD reduce their use of short-term debt, whereas they increase their use of long-term debt compared to those in states rejecting the IDD. For short-term finance, our extended analyses demonstrate that firm age negatively moderates the relationship between adoption of IDD and access to external finance, while CEO age, CEO gender, and CEO-holding MBA positively moderate this relationship. For long-term finance, our extended analyses demonstrate that firm age, CEO gender, and CEO-holding MBA negatively moderate the relationship between adoption of IDD and access to external finance, whereas CEO age, as a moderator, does not affect this relationship. The findings of this paper have significant implications for corporate boards, given that state courts' adoption of IDD is a viable determinant of the components of external funding.

Keywords: Protection of trade secrets; External finance; Inevitable disclosure doctrine (IDD) adoption; Human capital; Debt market; Employee mobility (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025003843

DOI: 10.1016/j.iref.2025.104221

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