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...

We study the effect of wrongful-discharge laws (WDL) on firm-level stock returns. We find disparate effects depending on the exact design of the law. Consistent with rational, risk-based pricing, the effect on returns seems to be linked to how firms share systematic risk with their employees...