We study the effects of non-competition agreements by analyzing time-series and cross-sectional variation in the enforceability of these contracts across U.S. states. We find that tougher noncompetition enforcement promotes executive stability. Increased enforceability also results in reduced executive compensation and shifts its form towards greater use of salary. We further show that stricter enforcement reduces research and development spending and capital expenditures per employee. These results are consistent with a model in which enforceable non-competition contracts encourage firms to invest in their managers' human capital. On the other hand, our findings suggest that these contracts also discourage managers from investing in their own human capital and that this second effect is empirically dominant.
We examine the impact of asset liquidation value on debt contracting using a unique set of commercial property non-recourse loan contracts. We employ commercial zoning regulation to capture the flexibility of a property's permitted uses as a measure of an asset's redeployability or value in its next best use. Within a census tract, more redeployable assets receive larger loans with longer maturities and durations, lower interest rates, and fewer creditors, controlling for the current value of the property, its type, and neighborhood. These results are consistent with incomplete contracting and transaction cost theories of liquidation value and financial structure.
meetings. We also thank Kathy Burson and Xia Chen for excellent research assistance. Moskowitz also thanks the James S. Kemper Foundation for financial support. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.
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