Seems to follow to a conclusion it’s own initial hypothesis that
Consistent with this evidence, I propose
that in regions in which such non-competes are enforced more strictly, firms likely undertake
riskier R&D paths, implying a higher likelihood of achieving extremely valuable inventions
(i.e., technological breakthroughs), but also a higher probability of failure. I also propose that
non-compete enforcement affects the direction of research efforts, inducing firms to
undertake projects in new technological areas. I predict these effects because non-compete
contracts reduce outbound mobility and knowledge leakages to competitors. As a result, a
stronger enforcement of non-competes makes high-risk R&D projects relatively more
valuable than low-risk ones.
DISCUSSION AND CONCLUSIONS
While previous research has extensively studied the implications of non-compete agreements
for regional growth and performance, far less is known about the impact of such contracts on
firms’ strategies. This study investigates the impact of non-competition agreements on the
type of R&D activity undertaken by companies. I showed that in areas where non-compete
agreements are enforced more strictly, the likelihood that corporate inventions will be
explorative and path-breaking is greater. However, I also have found that a greater
probability of achieving great inventive successes is accompanied by a greater probability of
extremely poor outcomes.
But oddly also in our case…
This work accordingly offers several key contributions to prior literature. First, I
provide relevant insights into how the strategy and competitive advantage of firms depends
on the institutional environment in which they are embedded (see also Ingram and Silverman
2002; Furman 2003). With regard to innovative performance, Hall and Soskice (2001)
suggest that in liberal market economies (e.g., U.S., U.K.), due to more labor turnover
companies innovate more radically than they do in coordinated-market countries (e.g.,
Germany, France), where firms instead specialize in incremental, less risky innovation.
However, this study provides evidence that in regions where non-competes are enforced more
strictly, and thus mobility is limited, corporate inventions actually tend to be radical and pathbreaking.
Second, this study offers interesting findings for entrepreneurship literature, which
previously has considered non-competition agreements mainly as barriers to the formation of
new companies, seemingly decreasing technological variety and risk-taking in a region. My
study suggests that the strong appropriability regime determined by non-competes stimulate
corporate entrepreneurship, inducing managers to experiment and explore risky and
potentially path-breaking technological solutions.