Journal of Law, Finance, and Accounting > Vol 5 > Issue 1

Wrongful Discharge Laws and Asymmetric Cost Behavior

Yongtae Kim, Santa Clara University, USA, Siqi Li, Santa Clara University, USA, Sli3@scu.edu Hyungshin Park, Santa Clara University, USA,
 
Suggested Citation
Yongtae Kim, Siqi Li and Hyungshin Park (2020), "Wrongful Discharge Laws and Asymmetric Cost Behavior", Journal of Law, Finance, and Accounting: Vol. 5: No. 1, pp 65-105. http://dx.doi.org/10.1561/108.00000041

Publication Date: 20 Apr 2020
© 2020 Y. Kim, S. Li and H. Park
 
Subjects
Cost management,  Management control,  Labor Economics,  Law and Economics,  Uncertainty,  Regulation
 
Keywords
JEL Codes: E20, J30, K31, M41
Cost stickinessasymmetric cost behaviorwrongful discharge lawsemployment lawslabor adjustment costs
 

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In this article:
1. Introduction
2. Literature and Hypothesis Development
3. Sample and Research Design
4. Empirical Results
5. Additional Analyses
6. Conclusions
Appendix A: Variable Definition
References

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.

DOI:10.1561/108.00000041