The Benefits of Trade Secret Legal Protection: Evidence from Firms’ Cost Structure Decisions

Feng Gao, Xue Wang and Benda Yin

The Journal of Law, Economics, and Organization, 2023, vol. 39, issue 3, 847-875

Abstract: We investigate whether better trade secret legal protection permits a firm to shift resources from protecting trade secrets to expanding its fixed operation capacity, thus reducing cost elasticity. We employ the staggered adoption of the Inevitable Disclosure Doctrine (IDD) by US state courts as a plausibly exogenous shock that improves trade secret legal protection. We find a reduction, on average, in cost elasticity in firms headquartered in the IDD recognition states relative to those in non-affected states. This change in cost structure is concentrated in firms with trade secrets. These results highlight that the optimal choice of fixed resources is affected by the extent of trade secret protection. Further, we find that firm value is higher for trade secret firms after the IDD adoption. Overall, our empirical evidence suggests that trade secret legal protection is beneficial for firms with trade secrets.

Keywords: D23; D24; D81; K12; K22; M41 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/jleo/ewac013 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:39:y:2023:i:3:p:847-875.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().