Employment protection and share repurchases: Evidence from wrongful discharge laws

Viet Dang, Amedeo De Cesari and Hieu V. Phan

Journal of Corporate Finance, 2021, vol. 69, issue C

Abstract: We use the staggered adoption of Wrongful Discharge Laws (WDLs) by U.S. state courts as a quasi-natural experiment to examine the causal impact of firing costs and employment protection on corporate payouts. We find that the greater employment protection imposed by WDLs leads to higher share repurchases, and that this finding is more pronounced among firms with greater financial resources and better governance. Our results support the argument that as higher firing costs enhance employee entrenchment and encourage rent extraction behavior, firms have an incentive to increase share buybacks to mitigate a wealth transfer from shareholders to employees.

Keywords: Employment protection; Share repurchases; Corporate payout; Labor laws (search for similar items in EconPapers)
JEL-codes: G32 G35 J63 K31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:69:y:2021:i:c:s0929119921001589

DOI: 10.1016/j.jcorpfin.2021.102036

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