Shielding Firm Value: Employment Protection and Process Innovation

61 Pages Posted: 14 Aug 2018 Last revised: 4 Sep 2020

See all articles by Jan Bena

Jan Bena

University of British Columbia - Sauder School of Business

Hernan Ortiz-Molina

University of British Columbia (UBC) - Sauder School of Business

Elena Simintzi

University of North Carolina Kenan-Flagler Business School; Centre for Economic Policy Research (CEPR)

Date Written: September 3, 2020

Abstract

Following state-level legal changes that increase labor dismissal costs, firms increase their innovation in new processes that facilitate the adoption of cost-saving production methods, especially in industries with a large share of labor costs in total costs. Firms with high innovation ability exhibit larger increases in process innovation and capital intensity, and larger decreases in employment and employment growth. This allows them to increase labor productivity, operating performance, and to mitigate value losses. Our evidence highlights that, by facilitating the adjustment of the input mix when conditions in input markets change, innovation ability is a key driver of firm performance.

Keywords: Process innovation, Knowledge capital, Labor market frictions, Wrongful discharge laws

JEL Classification: D22, G30, J30, J63, O31, O32

Suggested Citation

Bena, Jan and Ortiz-Molina, Hernan and Simintzi, Elena, Shielding Firm Value: Employment Protection and Process Innovation (September 3, 2020). Available at SSRN: https://ssrn.com/abstract=3223176 or http://dx.doi.org/10.2139/ssrn.3223176

Jan Bena (Contact Author)

University of British Columbia - Sauder School of Business ( email )

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HOME PAGE: http://www.janbena.com

Hernan Ortiz-Molina

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-6095 (Phone)
604-822-4695 (Fax)

Elena Simintzi

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building, Room 4200B
300 Kenan Center Drive
Chapel Hill, NC 27599-3490
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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