Non-Compete Covenants: Incentives to Innovate or Impediments to Growth

  • Samila S
  • Sorenson O
  • 92


    Mendeley users who have this article in their library.
  • 55


    Citations of this article.


We find that the enforcement of non-compete clauses significantly impedes entrepreneurship and regional growth. Based on a panel of metropolitan areas in the United States from 1993 to 2002, our results indicate that, relative to regions in states that enforce non-compete covenants, an increase in the local supply of venture capital in states that restrict them has significantly stronger positive effects on (i) the number of patents, (ii) the number of firm starts, and (iii) employment. We address potential endogeneity issues in the supply of venture capital by using endowment returns as an instrumental variable. Our results point to a strong interaction between financial intermediation and the legal regime in promoting entrepreneurship and growth.

Author-supplied keywords

  • G24
  • K31
  • L26
  • O43
  • R11
  • Venture capital
  • employment
  • entry
  • innovation
  • legal institutions
  • wages
  • financial intermediaries

Get free article suggestions today

Mendeley saves you time finding and organizing research

Sign up here
Already have an account ?Sign in

Find this document


  • Sampsa Samila

  • Olav Sorenson

Cite this document

Choose a citation style from the tabs below

Save time finding and organizing research with Mendeley

Sign up for free