Abstract
Insider trading opportunities around the patent application process incentivize corporate executives to secure patents for valuable knowledge assets. The American Inventors Protection Act (AIPA) of 1999 limited these insider trading opportunities by introducing pre-grant disclosure of patent applications. We provide causal evidence showing that, in response, corporate executives secured fewer patents to protect the firms’ valuable knowledge assets and that they switched to secrecy as an alternative protection means. Both effects are moderated by equity ownership. We can rule out that a decline in research and development drives the results. Our study demonstrates that insider trading opportunities affect corporate executives’ choice of isolating mechanisms. This is an important insight for innovation and intellectual property rights management.
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