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Authors
Advisor(s)
Abstract(s)
This study investigates the impacts of stricter enforcement of non-competition
agreements and stronger trade secrets protection on Venture Capital investments. I
argue that non-competition agreements, by reducing outbound mobility and knowledge
leakages to competitors, harm entrepreneurship. By contrast, trade secrets do not
impede previous employee to found their own companies, assuming they are not
misappropriating any trade secrets. As a result, trade secrets are not an impediment to
knowledge spillovers and thus foster entrepreneurship. Moreover, non-competition
agreements protect the human capital of the employees by preventing them to move to a
competitor, whereas trade secrets protect some knowledge complementary to employee
human capital, this indicates that these two legal means of protection might be
complementary. This study uses data about Venture Capital investments in the U.S.
from 1980 to 1994 and considers longitudinal variation in the enforcement of noncompetition
agreements and trade secrets. The results indicate that stricter enforcement
of non-competition agreements reduces Venture Capital investments and that stronger
trade secrets protection increases Venture Capital investments. Finally, these results
also indicate that the stricter the enforcement of non-competition agreements, the higher
the positive impact of trade secrets on Venture Capital investments.