Employee Career Constraint and Innovation

Abstract

This study aims to investigate the effect of inevitable disclosure doctrine (IDD) adoption by US state courts on firms’ innovation. IDD adoption serves as an exogenous shock on labor market and industry competition from which we expect the negative effect on firms’ innovation come. We find that IDD adoption reduce industry competition and firms’ incentive to innovate. Our findings reveal that the IDD adoption has worse consequences than the enactment of uniform trade secrets act. The deteriorating effect of IDD enactment on innovation is not only for the initial adoption period but also for at least one year ahead. This research argues that the IDD adoption has departed from the optimum effect of trade secrets regulation.