Knowledge Protection and Strategic Alliances

Abstract

This paper studies whether knowledge protection affects firm strategic alliance (SA) activity. Using the staggered adoptions and rejections of the inevitable disclosure doctrine (IDD) by U.S. state courts as exogenous changes in the level of knowledge protection, we document an increase in SA formations for firms headquartered in states that adopt the IDD. We also uncover a positive IDD treatment effect on firms’ long-run alliance-driven abnormal stock returns. The treatment effects are found to be stronger in more knowledge-oriented states, industries and firms. Finally, the increase in SA formations – occasioned by the IDD – subsequently spur local economic and employment growth.