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. Using a sample of 36,847 firm-year observations between 1984 to 2018, our findings document a significant increase in foreign inventor diversity following the adoption of IDD. While the ability to access foreign inventors provides firms with the potential for new knowledge creation, this capability is constrained by the firms' absorptive capacity, with the effect being 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.
