The Fear of Divorce: The Unintended Consequence of Unilateral Divorce Laws for Corporate Innovation

ABSTRACT:

Unilateral divorce laws (UDLs) are designed to increase the ease of divorce by eliminating the need for explicit consent from both partners. We investigate whether and how such laws affect corporate decisions, with a focus on innovation. By utilizing the staggered passage of UDLs in U.S. states from 1969 to 1985, we employ a difference-in-differences design and find that firms generate fewer patents following the enactment of UDLs. This is consistent with the notion that making divorce easier leads to an increase in individuals' anxiety regarding the risk of potential wealth loss. Consequently, it discourages them from engaging in innovative activities. Further analyses reveal that the adverse effect of UDLs on corporate innovation is more pronounced in states with a higher property loss risk and divorce probability. Overall, our findings shed new light on the impact of family laws through the lens of corporate behavior.