Employee mobility and the appropriation of value from knowledge: Evidence from three essays

In this dissertation, I argue that employee mobility is a key consideration of the firm. Firms often rely on human assets to generate and maintain knowledge. When key individuals depart the firm, they take knowledge with them, potentially undermining the firm or helping competitors. Specifically, I theorize as to how the potential for employee departure affects firm value, and empirically examine my hypotheses in strategy contexts such as M&As, R&D, and equity investment. Across three studies, I find a consistent pattern of evidence to suggest employee mobility has economically significant and strategically important effects for the firm. In essay one, I argue that acquirers incorporate expectations about employee departure into M&A decisions. Using a natural experiment, I find causal evidence that constraints on employee mobility raise the likelihood that affected firms will become acquisition targets. This effect is stronger when firms are more exposed to negative consequences of employee mobility and weaker when firms are protected by intellectual property rights that can mitigate the consequences of employee mobility. In essay two, I argue that secrecy is a valuable, and even primary, mechanism for protecting knowledge. For firms to invest in R&D, it is essential that they are able to capture value from the knowledge that they create, and many firms use employee non-compete agreements to stem the leakage of secrets to competitors. I find causal evidence that constraints on employee mobility initially boost Tobin's q by as much as 25%, but that the effect is eventually undone as firms are harmed by the slower circulation of talent and ideas, causing them to become more myopic in their R&D. In essay three, I argue that investors anticipate the potential for employee departure, resulting in a 'mobility discount' for firms exposed to greater costs of employee departure. I find evidence that firms with a high reliance on key scientists are discounted in the market by as much as 12%. The mobility discount increases when scientists are more central to the future growth opportunities of the firm, and decreases when firms enjoy legal protection from employee departure through the enforcement of non-compete agreements

Motivating Innovation: The Effect of Loss Aversion on the Willingness to Persist

We investigate the willingness of individuals to persist at exploration in the face of failure. Prior research suggests that the organization's "tolerance for failure" may motivate greater exploration by the individual. Little is known, however, about how individuals persist at exploration in an uncertain environment when confronted by prolonged periods of negative feedback. To examine this question, we design a two-dimensional maze game and run a series of randomized experiments with human subjects in the game. Our results suggest that individuals explore more when they are reminded of the incremental cost of their actions, a result that extends prior research on loss aversion and prospect theory to environments characterized by model uncertainty. In addition, we run simulations based on a model of reinforcement learning, that extend beyond two-period models of decision-making to account for repeated behavior in longer-running, dynamic contexts

The Value Of Employee Retention: Evidence From A Natural Experiment

We estimate the firm-level returns to retaining employees using difference-in-differences analysis and a natural experiment where the enforcement of employee noncompete agreements was inadvertently reversed in Michigan. We find that noncompete enforcement boosted the short-term value of publicly traded companies by approximately 9%. The effect is increasing in local competition and growth opportunities, and offset by patenting