Employee mobility, noncompete agreements, product-market competition, and company disclosure

Daniel Aobdia

doi:10.1007/s11142-017-9425-z

Employee mobility, noncompete agreements, product-market competition, and company disclosure

Daniel Aobdia^*

^*Corresponding author for this work

Accounting Information and Management

Research output: Contribution to journal › Article › peer-review

30 Scopus citations

Abstract

This study explores the impact on companies’ disclosures of U.S. states’ different propensities to enforce noncompete agreements. I find a negative association between a state’s enforcement of noncompete agreements and disclosure activities of firms headquartered in that state. Companies that face local rivals drive some results. Analyses that focus on several state-level changes in enforcement level of noncompete agreements confirm this association. Overall, the findings are consistent with a higher enforcement of noncompete agreements increasing proprietary costs of disclosure, because companies in high-enforcement settings are less informed about each other due to reduced information leakage from employee transfers across competitors. The results suggest that the overall environment for information spillovers surrounding a firm impacts its degree of disclosure to the capital markets and that state-specific enforcement of noncompete agreements can be used as a novel measure of the proprietary costs of disclosure.

Original language	English (US)
Pages (from-to)	296-346
Number of pages	51
Journal	Review of Accounting Studies
Volume	23
Issue number	1
DOIs	https://doi.org/10.1007/s11142-017-9425-z
State	Published - Mar 1 2018

Funding

Acknowledgments A prior version of this paper was circulated under the title “Noncompete Agreements, Product-Market Competition, and Company Disclosure.” I thank Shuping Chen, Bin Miao, and Terry Shevlin for sharing their disclosure quality measure with me. I also thank Peter Easton (editor), two anonymous referees, David Aboody, Judson Caskey, Daniel Cohen [the 2014 Financial Accounting and Reporting Section (FARS) Midyear Meeting conference discussant], Craig Chapman, David Erkens, Jack Hughes, Robert Magee, Tatiana Sandino, Beverly Walther, and the seminar participants at the 2014 FARS Conference, Harvard Business School, Northwestern University, and the University of Southern California for helpful comments on prior versions of this paper. I also thank Tony Liu for excellent research assistance. Last, I gratefully acknowledge funding from the Accounting Research Center at Northwestern University and, in particular, the Revsine and Ernst & Young LIVE Fellowships. I was a Senior Economic Research Fellow at the Public Company Accounting Oversight Board (PCAOB) between September 2014 and September 2016. I wrote this paper before joining the PCAOB. The PCAOB, as a matter of policy, disclaims responsibility for any private publication or statement by any of its Economic Research Fellows and employees. The views expressed in this paper are the views of the author and do not necessarily reflect the views of the Board, individual Board members, or staff of the PCAOB.

Keywords

Disclosure
Employee mobility
Noncompete agreements
Proprietary costs

ASJC Scopus subject areas

Accounting
General Business, Management and Accounting

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10.1007/s11142-017-9425-z

Cite this

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title = "Employee mobility, noncompete agreements, product-market competition, and company disclosure",

abstract = "This study explores the impact on companies{\textquoteright} disclosures of U.S. states{\textquoteright} different propensities to enforce noncompete agreements. I find a negative association between a state{\textquoteright}s enforcement of noncompete agreements and disclosure activities of firms headquartered in that state. Companies that face local rivals drive some results. Analyses that focus on several state-level changes in enforcement level of noncompete agreements confirm this association. Overall, the findings are consistent with a higher enforcement of noncompete agreements increasing proprietary costs of disclosure, because companies in high-enforcement settings are less informed about each other due to reduced information leakage from employee transfers across competitors. The results suggest that the overall environment for information spillovers surrounding a firm impacts its degree of disclosure to the capital markets and that state-specific enforcement of noncompete agreements can be used as a novel measure of the proprietary costs of disclosure.",

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note = "Funding Information: Acknowledgments A prior version of this paper was circulated under the title “Noncompete Agreements, Product-Market Competition, and Company Disclosure.” I thank Shuping Chen, Bin Miao, and Terry Shevlin for sharing their disclosure quality measure with me. I also thank Peter Easton (editor), two anonymous referees, David Aboody, Judson Caskey, Daniel Cohen [the 2014 Financial Accounting and Reporting Section (FARS) Midyear Meeting conference discussant], Craig Chapman, David Erkens, Jack Hughes, Robert Magee, Tatiana Sandino, Beverly Walther, and the seminar participants at the 2014 FARS Conference, Harvard Business School, Northwestern University, and the University of Southern California for helpful comments on prior versions of this paper. I also thank Tony Liu for excellent research assistance. Last, I gratefully acknowledge funding from the Accounting Research Center at Northwestern University and, in particular, the Revsine and Ernst & Young LIVE Fellowships. I was a Senior Economic Research Fellow at the Public Company Accounting Oversight Board (PCAOB) between September 2014 and September 2016. I wrote this paper before joining the PCAOB. The PCAOB, as a matter of policy, disclaims responsibility for any private publication or statement by any of its Economic Research Fellows and employees. The views expressed in this paper are the views of the author and do not necessarily reflect the views of the Board, individual Board members, or staff of the PCAOB. Publisher Copyright: {\textcopyright} 2017, Springer Science+Business Media, LLC.",

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N2 - This study explores the impact on companies’ disclosures of U.S. states’ different propensities to enforce noncompete agreements. I find a negative association between a state’s enforcement of noncompete agreements and disclosure activities of firms headquartered in that state. Companies that face local rivals drive some results. Analyses that focus on several state-level changes in enforcement level of noncompete agreements confirm this association. Overall, the findings are consistent with a higher enforcement of noncompete agreements increasing proprietary costs of disclosure, because companies in high-enforcement settings are less informed about each other due to reduced information leakage from employee transfers across competitors. The results suggest that the overall environment for information spillovers surrounding a firm impacts its degree of disclosure to the capital markets and that state-specific enforcement of noncompete agreements can be used as a novel measure of the proprietary costs of disclosure.

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Employee mobility, noncompete agreements, product-market competition, and company disclosure

Abstract

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Keywords

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