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

• 成果类型: Article
• 署名作者: Wang, Wei; Yung, Chris
• 署名单位: University System of Ohio; Cleveland State University; University of Virginia
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.01936
• 发表日期: 2025
• 关键词: wrongful discharge laws; venture capital; difference-in-differences

摘要

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.