Abstract
Strategic factor markets allow firms to access knowledge and technology, yet their institutional underpinnings and the effect of changes in the institutional framework on firm behavior are poorly understood. We address a change in institutions regarding the strength of trade secret protection, more specifically the staggered implementation of the Uniform Trade Secrets Act (UTSA) in the U.S. We show that stronger trade secret protection increases the likelihood of firms to engage on the market for corporate control, a consequence unintended by the UTSA. We identify two mechanisms. First, the UTSA limits knowledge outflows through employee mobility which makes knowledge-intensive firms more attractive acquisition targets. Second, stronger trade secret protection grants acquiring firms better protection of the acquired knowledge and technology.
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