The Right to Fire: Stock Market Reaction to the Adoption and Subsequent Rescinding of the First Employment Contract in France
The Right to Fire: Stock Market Reaction to the Adoption and Subsequent Rescinding of the First Employment Contract in France

Summary/Abstract: A recent event in France provides us with excellent opportunity to study the economic impact of the availability of the option to fire employees in Europe. Using stock market indices of eleven European countries as well as the U.S. S&P500 index, we find that the stock markets of several European nations, i.e., France, Germany, Netherlands, and Italy respond positively to the introduction of the contrat première embauche (CPE) suggesting that the right to fire enhances firm value. This conclusion is further evidenced by the negative stock returns when the CPE was withdrawn in April after mass protests broke out across France. Comparable reactions in countries such as Germany and Netherlands seem to be attributed to the similar labor market structure and/or the consolidated trading on Euronext. The significant event effect observed in Europe is not due to U.S.- related news, as we find U.S. markets generate only insignificant returns during these event dates.

• Details
• Contents