Unintended consequences of discrimination litigation caps

Spencer Barnes

Journal of Financial Research, 2025, vol. 48, issue 3, 1315-1349

Abstract: On July 14, 1992, the U.S. Equal Employment Opportunity Commission (EEOC) implemented a policy that caps punitive damage payouts from discrimination litigation at different employee counts allowing for a “difference‐in‐discontinuities” design. I find that these kink points incentivize firms to restrict their number of employees, which reduces their maximum discrimination litigation exposure to between 40% and 60% of their yearly median revenues. In turn, firm growth decreases for firms below these EEOC thresholds after the implementation of the policy. These firms reduce financing and are not motivated to decrease growth by relative changes in cash flows from discrimination risk exposure.

Date: 2025
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