Drawing on institutional theory and absorptive capacity, this study examines how institutional changes in labor mobility influence firms’ strategic decisions to source innovation talent locally versus internationally. Using the staggered adoption of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts as a natural experiment, we apply generalized difference-in-differences (DiD) and Borusyak et al. (2024) Imputation DiD estimators. Our findings show a significant increase in foreign inventor diversity following labor mobility restrictions, with the effect more pronounced in knowledge-intensive industries and firms with greater geographical dispersion. This research offers novel insights into how institutional change in labor mobility can shape firms’ global talent acquisition strategies. Keywords: Labor mobility, Knowledge transfer, Global innovation, Institutional theory, Absorptive capacity
