Economic Outcomes of Corporate Espionage

Abstract

This paper investigates the economic outcomes of corporate espionage (also known as trade secrets) lawsuits. Utilizing 137 hand-collected trade secret cases, we find significantly positive (negative) abnormal returns for the favorable (unfavorable) court decisions up to 5 days around the court decision dates. Our findings are consistent with two hypotheses: information leaking before the event and investor overreaction/underreaction on and after the event days. Our analysis on firm fundamentals show that the consequences of losing trade secret lawsuits are long-lasting. The findings indicate that the punishment incorporated by the market is more severe for the losing firms.