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Non-compete agreements, innovation value and efficiency

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  • He, Zhaozhao

Abstract

Non-compete agreements help protect business investments by restricting worker mobility, thereby increasing firm incentives to invest. Yet, they could damage the efficacy of such investments by reducing employee incentives and hampering knowledge flows. Exploiting staggered reforms of state non-compete enforcement, I find that patents filed after an increased enforceability are less valuable and exploratory despite no less R&D spending. Inventors whose job prospects are more jeopardized, in a weaker bargaining position, and having greater incentives to switch firms produce patents with greater valuation losses. These results imply that labor allocative inefficiency owing to mobility restrictions could compromise value creation from real investments.

Suggested Citation

  • He, Zhaozhao, 2025. "Non-compete agreements, innovation value and efficiency," Journal of Corporate Finance, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:corfin:v:90:y:2025:i:c:s0929119924001603
    DOI: 10.1016/j.jcorpfin.2024.102698
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    Keywords

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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