Enforcement of Non-Compete Agreements, Outside Employment Opportunities, and Insider Trading

Posted: 16 Dec 2017 Last revised: 31 May 2023

See all articles by Bo Gao

Bo Gao

The University of Texas at El Paso-Department of Accounting and Information Systems

Feng Guo

Iowa State University - Department of Accounting and Finance

Ling Lei Lisic

Virginia Tech - Pamplin College of Business

Thomas C. Omer

University of Nebraska at Lincoln - School of Accountancy

Date Written: 2023

Abstract

Enforcement of non-compete agreements could affect executives’and directors’incentives to profitfrom their information advantage. This is because excessive trading profits could result in job ter-mination, which would trigger the restrictions imposed by the non-compete agreements. Wefindthat executives’and directors’insider trading profits from sales are lower for companiesheadquartered in states with greater enforcement of non-compete agreements. The path analysessuggest that high enforcement of non-compete agreements disincentivizes managers to profit fromtheir information advantage to avoid the possibility of job termination and the cost of job termina-tions. We alsofind that insiders in companies headquartered in states with greater enforcement ofnon-compete agreements are less likely to exploit their information advantage by timing their salesbefore unfavorable corporate earnings announcements. The results suggest that enforcement ofnon-compete agreements reduces executives’and directors’incentives by imposing costs on futureoutside employment opportunities.

Keywords: non-compete, labor mobility, insider trading, career concern, job termination

JEL Classification: M55, J62, G14

Suggested Citation

Gao, Bo and Guo, Feng and Lisic, Ling Lei and Omer, Thomas C., Enforcement of Non-Compete Agreements, Outside Employment Opportunities, and Insider Trading ( 2023). Contemporary Accounting Research 40 (2): 759-1513., Available at SSRN: https://ssrn.com/abstract=3083133 or http://dx.doi.org/10.2139/ssrn.3083133

Bo Gao

The University of Texas at El Paso-Department of Accounting and Information Systems ( email )

Feng Guo

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Ling Lei Lisic

Virginia Tech - Pamplin College of Business ( email )

3007 Pamplin Hall
Blacksburg, VA 24061
United States

Thomas C. Omer (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
2,691
PlumX Metrics