Trade Secrets Protection and Corporate Tax Avoidance

Abstract

This paper examines the relationship between an increase in legislative trade secrets protection and its effect on tax avoidance by large companies. We do this by examining the state-staggered implementation of the Uniform Trade Secrets Act, a state-level trade secrets law. First, we show that the adoption of the UTSA, by itself, does not have any effect on tax avoidance activities by firms located in UTSA states. However, our research demonstrates a negative association between large firms located in UTSA states and the accompanying tax avoidance by these firms. Additionally, we document the differences in tax avoidance activities by companies in different industries. Namely, we find that large high-technology companies engage in less tax avoidance as compared to companies in other industries. Overall, our results are consistent with stronger trade secrets protection leading to less tax avoidance activities by large firms.