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Proprietary Knowledge Protection and Product Market Performance

Published online by Cambridge University Press:  02 November 2022

Justin Hung Nguyen*
Affiliation:
Massey University, Massey Business School
Peter Pham
Affiliation:
UNSW Sydney, Institute of Global Finance and School of Banking and Finance [email protected]
Buhui Qiu
Affiliation:
University of Sydney, University of Sydney Business School [email protected]
*
[email protected] (corresponding author)
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Abstract

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Does proprietary knowledge protection (PKP) spur or hinder the product-market performance of new firms? Exploiting the staggered adoptions of the inevitable disclosure doctrine by U.S. State Courts, which enhance PKP, we show that treated firms increase industry-adjusted sales growth by 2% compared to control firms. The effect is concentrated among small and young firms and increases with the scope of proprietary knowledge and rivals’ access to external finance. PKP encourages firms to develop new products and stimulates initial public offering activity. Our results suggest that PKP alleviates predation risk associated with “deep-pocket” rivals by allowing firms to maintain competitive advantages.

Type
Research Article
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Sandy Klasa (the referee) and seminar participants at Victoria University of Wellington, Massey University, Auckland University of Technology, and the University of Auckland for their helpful comments and suggestions. All errors are our own.

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