SSRN Electronic Journal · 2002 · 30 citations · 0 references
LawCorporate GovernanceCorporate LawCompany LawCorporate DisclosureTrade Secret LawSuspicious Activity ReportingTrade Secret MisappropriationTrade Secret ProtectionTrade Secret TheftTrade SecretsCorporate EspionageDisclosure Of Trade SecretsEspionage LawStock Value Analysis
The Economic Espionage Act of 1996 was enacted amid concerns that publicly traded firms might avoid reporting trade‑secret theft to protect stock prices. This study examines whether the fear that reporting trade‑secret theft under the EEA harms stock prices is justified. Using an event‑study approach, the authors analyze stock‑price reactions to EEA trade‑secret theft disclosures. The analysis shows that reporting trade‑secret theft under the EEA triggers negative stock‑price reactions, with larger theft values causing greater declines, indicating that firms are revictimized and raising concerns for the law’s effectiveness and corporate decision‑making.
In 1996 Congress passed the Economic Espionage Act (EEA). One of the concerns surrounding the passage of the EEA was that publicly traded companies would be hesitant to report trade secret theft to the government for fear that doing so would adversely impact their stock prices. This article investigates whether that concern has merit.Using event study methodology, we found that the market does, in fact, negatively react to the reporting of trade secret theft under the EEA. Stated differently, these companies are "revictimized" by going public with their loss. Further, we found a strong statistical link between the value of the trade secret and subsequent decreases in stock value (i.e., the higher the value of the trade secret the greater the decrease in stock price). These findings have important implications regarding the efficacy of the EEA and future amendments. They also have important implications for corporate legal counsel, CEOs, managers, and shareholders.