Wrongful discharge laws and asymmetric cost behavior
Yongtae Kim, Associate Dean and Siqi Li, Department Chair
Kim, Yongtae & Li, Siqi & Park, Hyungshin. (2020). Wrongful Discharge Laws and Asymmetric Cost Behavior. Journal of Law, Finance, and Accounting. 5. 65-105. 10.1561/108.00000041.
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., coststickiness). The effect of WDLs on cost stickiness varies across firmsand 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.