Finance and Economics Discussion Series (FEDS)

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February 2017

Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets

Buhui Qiu and Teng Wang

Abstract:

This paper studies whether knowledge protection affects shareholder value and firms' investment in knowledge assets 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 find positive (negative) abnormal stock returns around the IDD adoption (rejection) day for firms headquartered in the state and uncover a positive IDD treatment effect on firms' investment in knowledge assets. Moreover, the effects on stock returns and knowledge assets investment are stronger in more knowledge-oriented industries and firms. Finally, enhancing knowledge protection does not discourage local entrepreneurial activity.

Accessible materials (.zip)

Keywords: Inevitable Disclosure Doctrine, Investment in Knowledge Assets, Knowledge Protection, Shareholder Value

DOI: https://doi.org/10.17016/FEDS.2017.012

PDF: Full Paper

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Last Update: January 09, 2020