Wrongful Discharge Laws and Asymmetric Cost Behavior

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 employmenttermination on firm-level cost behavior. We find that the adoption of WDLs increases theasymmetric sensitivity of costs to activity (i.e., cost stickiness). The effect of WDLs on coststickiness varies across firms and industries, as well as by adoption timing and multiplicity. Ourevidence suggests that changes in the state-level legal environment have a significant effect onfirm-level resource adjustment decisions and asymmetric cost behavior