Legal protections to free speech foster better entrepreneurship

“Startups rely on narratives rather than cash flows to attract investors. When firms can silence critics, such as journalists or whistleblowers, through lawsuits, weak ventures survive longer than they should. Swarnodeep Homroy and Panagiota Papadimitri find that legal protections for free speech deter low quality startups from forming while improving the survival and innovation in others. In March 2026 the High Court of England and Wales struck out a defamation claim brought by Muhammed Kamal against Tax Policy Associates and its founder, Dan Neidle, under the “ anti-SLAPP ” provisions of the Economic Crime and Corporate Transparency Act (ECCTA) 2023. It was the first successful application of Britain’s new anti-SLAPP statute. But the case illustrates a pattern familiar from America: a party uses defamation litigation not to vindicate a genuine reputational interest but to impose costs on a critic and deter future scrutiny. This type of litigation is known as the strategic lawsuit against public participation (SLAPP). They are often framed as defamation and filed with the intention of draining the defendant’s time and resources. SLAPPs particularly affect investigative journalists, whistleblowers and activists. The ruling confirmed that courts in Britain can now dismiss such suits early and shift legal fees to the plaintiff. What is the cost of a SLAPP? As jurisdictions from Washington to Westminster adopt legal countermeasures, a natural question arises: do these protections have economic consequences beyond shielding individual critics? Venture capital markets are a useful setting for answering this question. Early-stage firms have limited operating histories, no statutory disclosure requirements and few verifiable cash flows. Founders attract talent and capital through pitch presentations, media visibility and reputation management. In this environment, the ability to suppress negative information has high returns. A startup facing criticism of its labour practices, product safety or governance can file a SLAPP to deter scrutiny. The lawsuit need not succeed. Its purpose is to impose costs on those who might expose the venture’s weaknesses. In 2017, Murray Energy (then the largest privately owned coal mining company in America) sued HBO in West Virginia for criticising its mining practices. Anti-SLAPP statutes are designed to neutralise this tactic. They provide procedural safeguards for speech on matters of public interest, including early dismissal of meritless suits, fee-shifting provisions, and discovery stays. Thirty-two American states and the District of Columbia have adopted these statutes at different times between 1990 and 2019. In the case of Murray Energy, West Virginia have not adopted an anti-SLAPP statute. These laws emerged from lobbying by journalists, NGOs and civil liberties groups. Entrepreneurs did not lobby for their adoption, and the statutes neither subsidise startup formation nor change entry and exit requirements for private markets. In our research , we ask: what happens to entrepreneurial ecosystems when civic society can scrutinise startups without fear of retaliatory litigation? Fewer startups, but better ones We studied over 18,000 VC-backed startups across America between 1990 and 2024 and compared entrepreneurial outcomes in states that adopted anti-SLAPP laws with those in states that never adopted them. Two broad channels could explain how free speech protections affect startups. First, a financing channel: by making information more transparent, anti-SLAPP laws could lower the cost of capital and encourage more venture formation. Investors can better distinguish strong ventures from weak ones among existing firms, leading to more investment overall but also higher failure rates as weak ventures are identified and liquidated. Second, a selection channel: by raising the cost of opacity, anti-SLAPP laws could deter low-quality founders from entering in the first place. Founders who rely on narrative control or aggressive reputation management face higher expected costs when scrutiny cannot be suppressed. Only founders confident in their fundamentals choose to enter. Our results are consistent with the selection channel. Anti-SLAPP adoption is associated with a 22 per cent decline in new venture formation. However, aggregate venture capital investment remains unchanged. Therefore, the reduction in entry is not driven by a shortage of financing. Startups fail less and innovate more The selection effect extends to exit outcomes. Bankruptcies decline by 34 per cent, and acquisitions fall by 19 per cent in adopting states relative to never-adopting states. These declines are economically substantial and suggest that ventures formed after anti-SLAPP adoption are more resilient and better screened. At the same time, the number of IPOs and average IPO under-pricing remain unchanged. Therefore, it doesn’t appear that public market outcomes are meaningfully affected. The strongest evidence for selection comes from innovation. Ventures in adopting states generate significantly more patents than ventures in never-adopting states. The effect emerges with a lag, becoming statistically significant several years after enactment. This is consistent with higher-quality ventures producing patentable innovations as they mature. States with the strongest statutes – those that combine broad definitions of protected speech with automatic fee-shifting and mandatory stays on discovery – produce the largest effects on venture selection and innovation. Why free speech matters? Most countries rely on financial incentives to stimulate entrepreneurship, such as research and development (R&D) subsidies, startup grants, tax credits and targeted funding schemes. These instruments can influence entry and investment, but they also impose fiscal costs and risk, distorting capital allocation. A substantial body of evidence documents that subsidy-based policies may crowd out private R&D spending and channel resources toward lower-productivity firms. In many jurisdictions, onerous bureaucratic procedures are used to deter weak ventures from forming, but these costs are borne by all firms. Our findings suggest a complementary approach. Legal institutions that safeguard civic liberties can improve entrepreneurial selection without restricting access to capital or imposing direct fiscal costs. By raising the reputational and informational stakes of market participation, free speech protections discourage weaker ventures while allowing more viable, innovative firms to form and survive. Strengthening civic institutions functions as a form of market infrastructure that enhances innovation efficiency through decentralised screening rather than through administrative gatekeeping or financial intervention. A key finding from our research is that the economic returns to free speech protection depend on the breadth and procedural strength of the statute. This distinction matters for Britain. The Kamal ruling is an important precedent, but the ECCTA’s anti-SLAPP provisions are narrow by design, applying only to claims related to economic crime. A SLAPP filed to silence criticism of a startup’s environmental record, labour practices or product safety would fall outside its scope. Our results highlight that the economic dividends from free speech protection scale with statutory coverage. This article is based on Civic Liberties and Entrepreneurial Outcomes (working paper, 2026). This article gives the views of the author, not the position of LSE Business Review or the London School of Economics. You are agreeing with our comment policy when you leave a comment. Image credit: evan_huang provided by Shutterstock. The post Legal protections to free speech foster better entrepreneurship first appeared on LSE Business Review .

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