Firing Costs and the Stock Market

52 Pages Posted: 20 Feb 2021 Last revised: 10 Jan 2023

See all articles by Robert Mahlstedt

Robert Mahlstedt


Rüdiger Weber

WU Vienna; Vienna Graduate School of Finance (VGSF)

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2020


We study the effects of firms' firing costs on stock market measures of risk and return by exploiting variation in wrongful-discharge laws (WDLs) adopted by U.S. states. We find disparate effects depending on the type of WDL that mirror how intra-firm risk sharing between labor and capital differs in states that adopted the respective laws. WDLs that increase mean returns, return volatility, Sharpe ratios, and factor betas are associated with more sticky employment and hence more risk-bearing by capital markets. Conversely, equity risk measures are lower in states where WDLs address agency frictions such that workers bear more risk via flexible wages.

Keywords: Expected stock returns, labor market frictions, firing costs, risk sharing, agency frictions

JEL Classification: G12, J38, G38

Suggested Citation

Mahlstedt, Robert and Weber, Rüdiger, Firing Costs and the Stock Market (December 8, 2020). Available at SSRN: or

Rüdiger Weber (Contact Author)

WU Vienna ( email )

Welthandelsplatz 1 1
Wien, 1020

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics