Wrongful Discharge Laws and Innovation

Acharya, V V and Baghai, R and Subramanian, K (2012) Wrongful Discharge Laws and Innovation. Working Paper. SSRN.

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We show that wrongful discharge laws - laws that protect employees against unjust dismissal - spur innovation and new firm creation. Wrongful discharge laws, particularly those that prohibit employers from acting in bad faith ex-post, limit employers' ability to hold up innovating employees after the innovation is successful. By reducing the possibility of the hold-up, these laws enhance employees' innovative efforts and encourage firms to invest in risky, but potentially mold-breaking, projects. We develop a model and provide supporting empirical evidence of this effect using the staggered adoption of wrongful discharge laws across the U.S. states.

Item Type: Monograph (Working Paper)
Subjects: Finance
Date Deposited: 09 Jun 2019 13:30
Last Modified: 09 Jun 2019 19:20
URI: https://eprints.exchange.isb.edu/id/eprint/1058

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