The Not-So-Uniform Effects of Trade Secret Protection on Business Entry

We explore the consequences of trade secret protection for new business formation in the United States. We find the states that adopt the Uniform Trade Secrets Act (UTSA), which enhances intellectual property rights, experience an overall decline in firm and establishment entry rates. This result is driven by the reduction in the establishment entry rates of start-ups and small firms. By contrast, the law increases the establishment entry rates of incumbents and larger firms. The negative impact of the UTSA is larger in industries that rely more on intellectual assets and trade secrets, as well as external-finance-dependent industries. (JEL K11, K22, L11, M13, O34, O38)