Journal of Law, Finance, and Accounting > Vol 5 > Issue 1

Wrongful Discharge Laws and Asymmetric Cost Behavior

Yongtae Kim, Santa Clara University, USA, Siqi Li, Santa Clara University, USA, , Hyungshin Park, Santa Clara University, USA
Suggested Citation
Yongtae Kim, Siqi Li and Hyungshin Park (2020), "Wrongful Discharge Laws and Asymmetric Cost Behavior", Journal of Law, Finance, and Accounting: Vol. 5: No. 1, pp 65-105.

Publication Date: 20 Apr 2020
© 2020 Y. Kim, S. Li and H. Park
Cost management,  Management control,  Labor Economics,  Law and Economics,  Uncertainty,  Regulation
JEL Codes: E20, J30, K31, M41
Cost stickinessasymmetric cost behaviorwrongful discharge lawsemployment lawslabor adjustment costs


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In this article:
1. Introduction 
2. Literature and Hypothesis Development 
3. Sample and Research Design 
4. Empirical Results 
5. Additional Analyses 
6. Conclusions 
Appendix A: Variable Definition 


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.