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Prof. Kapil Tuli
Professor of Marketing
Lee Kong Chian School of Business
Singapore Management University

ABSTRACT

Exploiting the staggered state-wide adoption of the Inevitable Disclosure Doctrine (IDD), this study examines how the protection of trade secrets is likely to have a significant impact on the advertising spending of firms. The adoption of IDD offers greater protection for a firm’s trade secrets because it restricts the ability of a firm’s current employees to work for its competitors. However, at the same time it also restricts the firm’s ability to hire employees from competitors. Building on these key aspects, we argue that firms exposed to IDD legislation are likely to increase their advertising spending as they seek to raise the profile of the firm. Utilizing a staggered difference-in-differences model, we find that firms that are treated to IDD are significantly more likely to increase their advertising spending as compared to firms in the control group. Importantly, the observed effects are robust across specification choices and the use of alternative estimation methods. In addition, we find significant heterogeneity in the firm response to this exogenous shock in their legislative environment.