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Wrongful Discharge Laws and Asymmetric Cost Behavior

Author

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  • Kim, Yongtae
  • Park, Hyungshin

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.

Suggested Citation

  • Kim, Yongtae & Park, Hyungshin, 2020. "Wrongful Discharge Laws and Asymmetric Cost Behavior," Journal of Law, Finance, and Accounting, now publishers, vol. 5(1), pages 65-105, April.
    • Handle: RePEc:now:jnllfa:108.00000041
    DOI: 10.1561/108.00000041
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    Citations

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    Cited by:

    1. Li, Tongxia & Lu, Chun, 2022. "Stakeholder orientation and cost stickiness: Evidence from a natural experiment," Finance Research Letters, Elsevier, vol. 47(PA).
    2. Desheng Yin & Xinting Zhen, 2021. "Employment Protection and Banking Power: Evidence from Adoption of Wrongful Discharge Laws," Sustainability, MDPI, vol. 13(4), pages 1-22, February.
    3. Al-Hadi, Ahmed & Habib, Ahsan, 2023. "Consequences of state-level regulations in accounting, finance, and corporate governance: A review," Advances in accounting, Elsevier, vol. 60(C).

    More about this item

    Keywords

    Cost stickiness; asymmetric cost behavior; wrongful discharge laws; employment laws; labor adjustment costs;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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