Abstract
ABSTRACT We provide empirical evidence showing that for managers with more potential outside employment opportunities, adoption of the Inevitable Disclosure Doctrine (IDD) causes them to just ‘stay safe’ by taking on less risk because of reduced labour mobility. Moreover, managers lower firm risk through reduced R&D intensity, capital expenditure, and more diversifying acquisitions. Consequently, these firms have a lower value after the adoption of the IDD. Overall, we document a novel unintended consequence of the recognition of the IDD, specifically, its effect on firm risk and investment policies for managers with more potential outside employment opportunities.
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