Wrongful Discharge Laws and Asymmetric Cost Behavior

Yongtae Kim and Hyungshin Park

Journal of Law, Finance, and Accounting, 2020, vol. 5, issue 1, 65-105

Abstract: Exploiting the natural experiment created by the adoption of wrongful discharge laws (WDLs) across U.S. states, we examine the effect of legal protection against unjust employment termination on firm-level cost behavior. We find that the adoption of WDLs increases the asymmetric sensitivity of costs to activity (i.e., cost stickiness). The effect of WDLs on cost stickiness varies across firms and industries, as well as by adoption timing and multiplicity. Our evidence suggests that changes in the state-level legal environment have a significant effect on firm-level resource adjustment decisions and asymmetric cost behavior.

Keywords: Cost stickiness; asymmetric cost behavior; wrongful discharge laws; employment laws; labor adjustment costs (search for similar items in EconPapers)
JEL-codes: E20 J30 K31 M41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:now:jnllfa:108.00000041

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