Labor cost and stock price crash risk: Evidence from China

This study investigates the causal impact of labor cost on stock price crash risk in China. We utilize a quasi-natural experiment, the 2011 "Social Insurance Law," as an exogenous shock to labor cost and employ a difference-in-differences estimation. Our results demonstrate that strengthening labor cost significantly reduce the stock price crash risk, and this conclusion holds after conducting a series of robustness tests. Heterogeneity analysis indicates that this effect is more pronounced in state-owned enterprises and firms with low financing constraints. Our findings suggest that labor cost/protection generates positive outcomes at the firm-level, thereby promoting stock price stability.