Money Secrets: How Do Trade Secrets Affect Firm Value? Evidence from a Quasi-Natural Experiment

52 Pages Posted: 26 Sep 2015

See all articles by Francesco Castellaneta

Francesco Castellaneta

SKEMA Business School, Université Côte d'Azur (GREDEG)

Raffaele Conti

Bocconi University

Aleksandra Kacperczyk

Massachusetts Institute of Technology (MIT); London Business School

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Date Written: September 24, 2015

Abstract

We investigate the impact of trade secret legal protection on firm value in the context of acquisitions. On one hand, market value may increase because trade secret assets become better protected from rivals. On the other hand, market value may decrease because trade secret protection reduces information about the target and its competitors available to potential buyers, increasing uncertainty about the target’s value. Buyers will discount their offers in expectation of being compensated for riskier deals. Using a sample of private equity investments in the United States, we find that trade secret protection has a positive effect in industries with high mobility of knowledge workers, and a negative effect in industries with high uncertainty and a high proportion of “lemons.”

Keywords: trade secrecy, market value, legal environment, buyouts

Suggested Citation

Castellaneta, Francesco and Conti, Raffaele and Kacperczyk, Aleksandra, Money Secrets: How Do Trade Secrets Affect Firm Value? Evidence from a Quasi-Natural Experiment (September 24, 2015). Available at SSRN: https://ssrn.com/abstract=2665459 or http://dx.doi.org/10.2139/ssrn.2665459

Francesco Castellaneta

SKEMA Business School, Université Côte d'Azur (GREDEG) ( email )

France

Raffaele Conti

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Aleksandra Kacperczyk (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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