Firing Costs and the Stock Market

41 Pages Posted: 20 Feb 2021 Last revised: 23 Dec 2023

See all articles by Robert Mahlstedt

Robert Mahlstedt

IZA

Rüdiger Weber

WU Vienna; Vienna Graduate School of Finance (VGSF)

Multiple version iconThere are 2 versions of this paper

Date Written: December 8, 2020

Abstract

We study the effects of firms' firing costs induced by the introduction of Wrongful Discharge Laws (WDLs) on stock market measures of risk and return. We find disparate effects for the different types of WDLs depending on how the law affects the flexibility of employment and wages. WDLs that result in more stable employment and more risk bearing by capital markets increase mean returns, Sharpe ratios, return volatility and factor betas. We find opposite effects for WDLs that address agency frictions, and, by fostering wage flexibility, alter the risk allocation in a way that is viewed more favorably by shareholders.

Keywords: Firing costs, expected stock returns, labor market frictions, risk sharing

JEL Classification: J38, G12, J33, G38

Suggested Citation

Mahlstedt, Robert and Weber, Rüdiger, Firing Costs and the Stock Market (December 8, 2020). Available at SSRN: https://ssrn.com/abstract=3746874 or http://dx.doi.org/10.2139/ssrn.3746874

Rüdiger Weber (Contact Author)

WU Vienna ( email )

Welthandelsplatz 1 1
Wien, 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
81
Abstract Views
762
Rank
372,080
PlumX Metrics