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Journal of Financial Economics Vol. 128 No. 2 2018

Protection of trade secrets and capital structure decisions

Sandy Klasa1; Hernán Ortiz-Molina; Matthew Serfling2,3; Shweta Srinivasan4

1 University of Arizona · 2 Knoxville College · 3 University of Tennessee at Knoxville · 4 Binghamton University

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.

DOI
10.1016/j.jfineco.2018.02.008
Volume
128
Issue
2
Pages
266-286
Language
en
Sources
crossref bibtex:phds-export.bib openalex

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