The Unintended Consequences of Adopting Universal Demand Laws on Employee Safety

Universal demand (UD) laws impose obstacles on shareholders who wish to file derivative lawsuits. In this paper, we examine the negative consequences of the staggered adoption of UD laws: threatening employee safety. Using the workplace safety data from OSHA, we find that firms experience a 27% increase in employee injuries following the adoption of UD laws, especially for those launching new products or taking risky investments. Besides, we show that the negative effect is also significantly asymmetric: firms with weaker labor unions or establishments located in low-income counties exhibit a greater increase in employee injuries. Such an asymmetric effect is likely driven by firms’ monopoly power in the labor market. Finally, we reveal that adoption of UD law leads to deterioration in integrity-related culture and reductions in organization capital.