Quotation Mahlstedt, Robert, Weber, Rüdiger. 2022. Risk Sharing Within and Outside the Firm: The Disparate Effects of Employment Protection on Expected Stock Returns. American Finance Association Annual Meeting, Boston, Vereinigte Staaten/USA, 07.01.-09.01.


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Abstract

We study the interrelation between two types of risk sharing - within the firm and on capital markets - by analyzing the effect of wrongful-discharge laws (WDLs) on stock returns. Consistent with rational, risk-based pricing, the effect on returns is linked to how shareholders and workers share systematic risk via distinct channels of employment and wage flexibility. We find disparate effects depending on the degree to which the respective law alleviates agency frictions. In states where WDLs prohibit employers from holding up employees by firing them, workers accept more variable compensation such that they bear more firm risk and expected stock returns are lower. Legislation that raises firing costs without addressing agency frictions only makes employment more sticky such that workers bear less firm risk and expected returns are higher.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title Risk Sharing Within and Outside the Firm: The Disparate Effects of Employment Protection on Expected Stock Returns
Event American Finance Association Annual Meeting
Year 2022
Date 07.01.-09.01.
Country United States/USA
Location Boston
JEL G12, G38, J38

Associations

People
Weber, Rüdiger (Details)
External
Mahlstedt, Robert (University of Copenhagen, Denmark)
Organization
Institute for Finance, Banking and Insurance IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5361 Financial management (Details)
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