Labor Mobility Restrictions and Firm Inventory Policy: Evidence From Judicial Adoption of the Inevitable Disclosure Doctrine

ABSTRACT We investigate how judicially imposed restrictions on managerial labor mobility shape firms' real operating policies, using inventory policy as the empirical setting. Specifically, we exploit the staggered judicial adoption of the Inevitable Disclosure Doctrine (IDD), a legal doctrine that restricts managers' mobility across competing firms, as a quasi‐natural experiment. Our analysis reveals that the IDD adoption leads to a significant reduction in firms' inventory holdings. This effect is more pronounced among managers with greater ability and longer tenure, consistent with the view that mobility restrictions encourage managers with stronger long‐term career incentives to adopt leaner inventory policies. We further show that the decline in inventory holdings moves firms closer to their optimal inventory levels, improves inventory efficiency, and enhances subsequent firm performance. Overall, our findings suggest that legal restrictions on labor mobility have important real effects on corporate operating policies by reshaping managerial career incentives.