We utilize the exogenous intertemporal variation in employment protection across countries and study the impact of employment protection on international equity markets. We find robust evidence that firms located in countries with weak labor protection regulation exhibit a low level of one-year-ahead stock price crash risks relative to those in countries with strong labor protection regulation. It is consistent with the view that when employees face material unemployment risk, they are more incentivized to engage in information search and analysis, thereby curtailing the effectiveness of managerial bad news hoarding activities (i.e., the protection heightening risk hypothesis). Our findings are robust to a battery of sensitivity tests. Further evidence shows that the impact of employment protection on crash risk is more pronounced for firms with a higher proclivity to suppress bad news and for firms in countries with stronger legal enforcement. Our findings have important implications for policymakers concerning equity extreme risk and labor protection around the globe.

我们利用各国就业保护的外生跨期差异，研究就业保护对国际股票市场的影响。我们发现强有力的证据表明，与劳动保护监管强有力的国家相比，劳动保护监管薄弱国家的公司未来一年股价崩盘风险较低。这与以下观点一致：当员工面临重大失业风险时，他们更有动力进行信息搜索和分析，从而削弱了管理层囤积坏消息活动的有效性（即保护增强风险假说）。我们的研究结果对于一系列敏感性测试来说是稳健的。进一步的证据表明，对于抑制坏消息倾向较高的公司以及执法力度较强的国家的公司来说，就业保护对崩盘风险的影响更为明显。我们的研究结果对全球有关公平极端风险和劳工保护的政策制定者具有重要意义。