Employment Protection and Venture Capital Investment: The Impact of Wrongful Discharge Laws-Reference-Cited by-同舟云学术

Employment Protection and Venture Capital Investment: The Impact of Wrongful Discharge Laws

Published:2024-05-22 Issue: Volume: Page:
ISSN:0025-1909
Container-title:Management Science
language:en
Short-container-title:Management Science

Author:

Wang Wei¹,Yung Chris²^ORCID

Affiliation:

1. Monte Ahuja College of Business, Cleveland State University, Cleveland, Ohio 44114;

2. McIntire School of Commerce, University of Virginia, Charlottesville, Virginia 22904

Abstract

Wrongful discharge laws (WDLs) provide limits to the employment-at-will doctrine, and thus impair operating flexibility, increasing expected financial distress costs by making it costly to fire employees. This impairment is detrimental to start-ups, leading to a decline in venture capital (VC) investment. Using a difference-in-differences framework enabled by the staggered adoption of WDLs across the U.S. states, we show VC investment declines after a state adopts the good faith exception (the strongest form of WDL). This decline is most pronounced in sectors with high labor dependency. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.01936 .

Publisher

Institute for Operations Research and the Management Sciences (INFORMS)

Link

https://pubsonline.informs.org/doi/pdf/10.1287/mnsc.2023.01936

Reference63 articles.

1. Can a Wrongful Discharge Statute Really Benefit Employers?

2. Wrongful Discharge Laws and Innovation

3. Labor unemployment risk and corporate financing decisions

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5. Patent trolls and startup employment