We study whether strengthened legal protection of trade secrets increases a firm’s likelihood of being acquired by another firm. Strengthened protection may increase the attractiveness of a potential target firm because trade secrets are better protected from misappropriation. But it may also decrease attractiveness because of higher information asymmetries between an acquiring and target firm. Using the staggered implementation of the Uniform Trade Secrets Act (UTSA) in the U.S., we show that strengthened trade secret protection increases the likelihood of being acquired. However, we find that foreign and domestic acquirers are differentially impacted by the legal change. Foreign acquirers prefer to engage in a minority acquisition rather than taking full control of a target. We attribute this finding to the higher risk associated with fully acquiring a target firm in an unfamiliar institutional context that foreign firms may seek to compensate for by acquiring only a minority stake.
Arranz et al. (2022) studied this question.