Wrongful Discharge Laws and Asymmetric Cost Behavior

52 Pages Posted: 29 Mar 2021

See all articles by Yongtae Kim

Yongtae Kim

Santa Clara University - Leavey School of Business

Siqi Li

Santa Clara University - Leavey School of Business

Hyungshin Park

Santa Clara University

Date Written: January 1, 2020

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.

Keywords: cost stickiness; asymmetric cost behavior; wrongful discharge laws; employment laws; labor adjustment costs

JEL Classification: E20, J30, K31, M41

Suggested Citation

Kim, Yongtae and Li, Siqi and Park, Hyungshin, Wrongful Discharge Laws and Asymmetric Cost Behavior (January 1, 2020). Available at SSRN: https://ssrn.com/abstract=3813326 or http://dx.doi.org/10.2139/ssrn.3813326

Yongtae Kim

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-4667 (Phone)
(408) 554-2331 (Fax)

Siqi Li (Contact Author)

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

Hyungshin Park

Santa Clara University ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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

Paper statistics

Downloads
54
Abstract Views
246
rank
469,764
PlumX Metrics