Mobility Restrictions and Risk-Related Agency Conflicts: Evidence from a Quasi-Natural Experiment

Stricter enforcement of manager post-employment restrictions that strengthen trade secrets protections also limits managers’ ability to accept better employment opportunities. We find that heightened managerial career concerns due to these mobility restrictions reduce firm risk taking and distort corporate financing decisions, particularly in firms whose managers value outside employment opportunities relatively more. The quality of firm investment decisions is also compromised, as indicated by more negative market reactions to acquisition announcements. These findings support managerial career concerns driving risk-related agency conflicts that reduce firm value. Our evidence suggests that shareholders benefit from flexible labor markets that promote managerial risk-taking.