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Title: Trade Secrets Protection and Antitakeover Provisions
Citation Type: Working Paper
Publication Year: 2019
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Abstract: We examine whether and why managers strengthen antitakeover provisions when facing an increased threat of being acquired. Our tests exploit the staggered recognition of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts, a doctrine that exogenously decreases knowledge worker mobility, thereby increasing firms’ likelihood of being acquired. We find that managers respond by increasing takeover defenses to deter hostile bids, especially when its employees had greater ex-ante employment mobility. Our cross-sectional tests examine two potential mechanisms driving managers’ decisions to increase takeover defenses: protection of firm value via innovation versus self-serving protection of manager’ jobs. Our results support the former mechanism. We find that increases in antitakeover provisions are significantly greater for firms with more knowledge workers, and higher research and development and intangible asset intensity, but not for firms with higher proxies of managerial entrenchment. Consistent with protection of innovation output, firms increasing antitakeover provisions following IDD enjoy higher ex-post patent quantity and quality. Firms with increased takeover defense provisions also experience a near term reduction or delay in takeover likelihood. Our results provide evidence of a setting where managers upward adjust their level of antitakeover provisions to protect innovation rather than for self-serving reasons.
Url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3161661
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Authors: Dey, Aiyesha; White, Joshua, T
Series Title: Vanderbilt Owen Graduate School of Management Research Paper
Publication Number: 19-102
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Data Collections: IPUMS USA
Topics: Labor Force and Occupational Structure, Other
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