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Equal Employment Opportunity Law and Firm Profitability

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  • Joni Hersch

Abstract

Based on a sample of 260 cases reported in the Wall Street Journal between 1964 and 1986, this study finds that the equity value of firms charged with violating equal employment opportunity (EEO) laws fell at the time that a suit, decision, or settlement was announced. Most dramatically, the value of firms involved in class action suits fell 15.6 percent on average around the time of the suit. Further, the average loss to shareholders exceeds the amount firms are required to spend to settle the case. This may be due to the expected costs of changing employment practices or to the information about the firm's management that is revealed by the case.

Suggested Citation

  • Joni Hersch, 1991. "Equal Employment Opportunity Law and Firm Profitability," Journal of Human Resources, University of Wisconsin Press, vol. 26(1), pages 139-153.
    • Handle: RePEc:uwp:jhriss:v:26:y:1991:i:1:p:139-153
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    Cited by:

    1. Judith K. Hellerstein & David Neumark & Kenneth R. Troske, 2002. "Market Forces and Sex Discrimination," Journal of Human Resources, University of Wisconsin Press, vol. 37(2), pages 353-380.
    2. David Neumark & Harry Holzer, 2000. "Assessing Affirmative Action," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 483-568, September.
    3. Witold J. Henisz & Sinziana Dorobantu & Lite J. Nartey, 2014. "Spinning gold: The financial returns to stakeholder engagement," Strategic Management Journal, Wiley Blackwell, vol. 35(12), pages 1727-1748, December.
    4. Bär, Michaela & Niessen, Alexandra & Ruenzi, Stefan, 2007. "The impact of work group diversity on performance: Large sample evidence from the mutual fund industry," CFR Working Papers 07-16, University of Cologne, Centre for Financial Research (CFR).
    5. Asa Rosen, 2003. "Search, Bargaining, and Employer Discrimination," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 807-830, October.
    6. Letian Zhang, 2020. "An Institutional Approach to Gender Diversity and Firm Performance," Organization Science, INFORMS, vol. 31(2), pages 439-457, March.
    7. Unsal, Omer & Brodmann, Jennifer, 2019. "Workplace environment and payout policy," Journal of Economics and Business, Elsevier, vol. 106(C).

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