Safeguarding Secrets, Shaping Acquisitions: Trade Secret Protection and the Role of Distance Between Acquirer and Target

Marta Arroyabe*, Christoph Grimpe, Katrin Hussinger

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We investigate whether strengthened legal protection of trade secrets increases the likelihood of a firm being acquired. Stronger protection can make a firm more attractive for acquisition because of better safeguarding of trade secrets, but it may also increase information asymmetries that discourage potential acquirers. Using the staggered implementation of the Uniform Trade Secrets Act in the United States, we show that stronger trade secret protection increases the likelihood of being acquired but also changes firms’ acquisition strategies more broadly depending on the distance between acquirer and target. Compared with domestic acquirers, foreign acquirers are only half as likely to make an acquisition, and they prefer to acquire minority rather than majority stakes. Both domestic and foreign acquirers are more likely to pursue stepwise acquisitions of a target as protection increases, consistent with a real options rationale. Further investigation suggests that, whereas increased trade secret protection increases information asymmetries for all acquirers, foreign acquirers as well as domestic acquirers located further away from a target are disproportionately affected.
Original languageEnglish
JournalStrategy Science
Number of pages18
ISSN2333-2050
DOIs
Publication statusPublished - 27 Sept 2024

Bibliographical note

Epub ahead of print. Published online: 27 September 2024.

Keywords

  • Trade secret protection
  • Firm acquisitions
  • Ownership stakes
  • Distance
  • Uniform Trade Secrets Act (UTSA)

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