Safeguarding Secrets, Shaping Acquisitions: Trade Secret Protection and the Role of Distance Between Acquirer and Target

Marta Arroyabe (), Christoph Grimpe () and Katrin Hussinger ()
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Marta Arroyabe: Essex Business School, University of Essex, Southend-on-Sea SS1 1LW, United Kingdom
Christoph Grimpe: Department of Strategy and Innovation, Copenhagen Business School, 2000 Frederiksberg, Denmark; and Leibniz Centre for European Economic Research, 68161 Mannheim, Germany
Katrin Hussinger: Leibniz Centre for European Economic Research, 68161 Mannheim, Germany; and Faculty of Law, Economics and Finance, University of Luxembourg, 1359 Kirchberg, Luxembourg; and Department of Management, Strategy and Innovation, Catholic University of Leuven, 3000 Leuven, Belgium

Strategy Science, 2025, vol. 10, issue 2, 148-165

Abstract: We investigate whether strengthened legal protection of trade secrets increases the likelihood of a firm being acquired. Stronger protection can make a firm more attractive for acquisition because of better safeguarding of trade secrets, but it may also increase information asymmetries that discourage potential acquirers. Using the staggered implementation of the Uniform Trade Secrets Act in the United States, we show that stronger trade secret protection increases the likelihood of being acquired but also changes firms’ acquisition strategies more broadly depending on the distance between acquirer and target. Compared with domestic acquirers, foreign acquirers are only half as likely to make an acquisition, and they prefer to acquire minority rather than majority stakes. Both domestic and foreign acquirers are more likely to pursue stepwise acquisitions of a target as protection increases, consistent with a real options rationale. Further investigation suggests that, whereas increased trade secret protection increases information asymmetries for all acquirers, foreign acquirers as well as domestic acquirers located further away from a target are disproportionately affected.

Keywords: trade secret protection; firm acquisitions; ownership stakes; distance; Uniform Trade Secrets Act (UTSA) (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orstsc:v:10:y:2025:i:2:p:148-165

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