IDEAS home Printed from https://ideas.repec.org/a/oup/jleorg/v39y2023i3p847-875..html
   My bibliography  Save this article

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

Author

Listed:
  • Feng Gao
  • Xue Wang
  • Benda Yin

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.

Suggested Citation

  • Feng Gao & Xue Wang & Benda Yin, 2023. "The Benefits of Trade Secret Legal Protection: Evidence from Firms’ Cost Structure Decisions," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 39(3), pages 847-875.
    • Handle: RePEc:oup:jleorg:v:39:y:2023:i:3:p:847-875.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/jleo/ewac013
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    D23; D24; D81; K12; K22; M41;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:jleorg:v:39:y:2023:i:3:p:847-875.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/jleo .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.