Employment Protection and Share Repurchases: Evidence from Wrongful Discharge Laws

65 Pages Posted: 1 Jun 2018 Last revised: 7 Apr 2019

See all articles by Viet Anh Dang

Viet Anh Dang

Alliance Manchester Business School

Amedeo De Cesari

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group

Hieu V. Phan

University of Massachusetts Lowell

Date Written: April 4, 2019

Abstract

We use the staggered adoption of Wrongful Discharge Laws (WDLs) by U.S. state courts as a quasi-natural experiment to examine the causal relation between employee firing costs and corporate payout policy. We find that the greater employment protection imposed by WDLs leads to higher stock repurchases, and that this impact is concentrated among financially unconstrained and well governed firms. Our analysis indicates that since higher firing costs exacerbate the conflict of interest between shareholders and workers and potentially lead to rent extraction by the latter, firms increase share buybacks to reduce the risk of wealth transfer from shareholders to workers.

Keywords: Employment Protection, Share Repurchases, Corporate Payout, Labor Laws

JEL Classification: G35, G32, J63, K31

Suggested Citation

Dang, Viet Anh and De Cesari, Amedeo and Phan, Hieu V., Employment Protection and Share Repurchases: Evidence from Wrongful Discharge Laws (April 4, 2019). Available at SSRN: https://ssrn.com/abstract=3188011 or http://dx.doi.org/10.2139/ssrn.3188011

Viet Anh Dang

Alliance Manchester Business School ( email )

AMBS Crawford House
Booth Street West
Manchester, Greater Manchester M15 6PB
United Kingdom
+44(0)16127 50438 (Phone)

Amedeo De Cesari (Contact Author)

University of Manchester - Alliance Manchester Business School - Finance & Accounting Group ( email )

Crawford House
Booth Street East
Manchester, M15 6PB
United Kingdom
+44 (0) 161 2754298 (Phone)

Hieu V. Phan

University of Massachusetts Lowell ( email )

72 University Avenue
Lowell, MA 01854
United States

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