Employee mobility, information transfer and stock price crash risk

You Li, Jian ZHANG*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

This paper examines the asset pricing implications of labor market friction by exploiting the staggered recognition of the Inevitable Disclosure Doctrine (IDD) by U.S. state courts as an exogenous event that adversely impacts employee mobility. After the recognition of the doctrine in their state, firms exhibit a significant increase in stock price crash risk compared to comparable firms in non-affected states. Moreover, the positive impact on a firm’s crash risk only appears after the IDD recognition and is unlikely to be driven by unobservable economic conditions. The effect is more pronounced for firms with higher ex-ante employment mobility, facing more intense competition and higher degrees of entry threats and operated in a stable industry.

Original languageEnglish
JournalAsia-Pacific Journal of Accounting and Economics
DOIs
Publication statusAccepted/In press - 2020

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • crash risk
  • employee mobility
  • inevitable disclosure doctrine
  • Labor market friction

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