Workplace Harassment Risk, Non-disclosure Agreements, and Information Flow

Abstract

We study the effects of the legal reform of non-disclosure agreements (NDAs) targeting workplace harassment. We argue that the new laws that limit the use of NDAs in harassment cases (i) reduce harassment-related frictions in social interactions between employees and (ii) improve information exchange in firms. Empirically, we find that legal insider trading becomes more profitable and less frequent, and firm value increases. The effects of the laws are stronger for individuals with high frictions in their social networks and for firms with high reliance on private communication.