Wrongful Discharge Laws and Innovation

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 (Unpublished)

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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.

Affiliation: Indian School of Business
ISB Creiators:
ISB Creators
Subramanian, K
Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Laws, Innovation, Discharge Laws
Subjects: Finance
Depositing User: Ilayaraja M
Date Deposited: 09 Jun 2019 13:30
Last Modified: 09 Jun 2019 19:20
URI: http://eprints.exchange.isb.edu/id/eprint/1058
Publisher URL: https://www.nber.org/papers/w18516
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