Work

Does legal protection of trade secrets reduce the cost of debt? Evidence from the inevitable disclosure doctrine

Year: 2025

Type: article

Abstract: We examine the effect of the inevitable disclosure doctrine (IDD) on cost of debt. Our difference‐in‐differences analyses reveal that the IDD significantly reduces the loan spread for borrowers in adopting states. To elucidate the mechanisms of such finding, we find that the IDD's effect is weaker in industries with high management turnover but stronger for long‐term loans. Moreover, cross‐sectional tests reveal that the effect is weaker for firms facing high industry competition, internal control weakness, and information asymmetry. IDD also mitigates loan covenant tightness. These findings elucidate the implications of IDD on corporate borrowing costs.

Source: The Journal of Financial Research

DOI: 10.1111/jfir.12467

Authors: Haiyan Jiang, Carl Hsin‐han Shen, Qing (Clara) Zhou

Institution: Macquarie University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,470

Funder: Macquarie University