The Price of Toxic Secrecy: Employee Voice and Stock Price Crash

ABSTRACT This paper examines whether Toxic Secrecy Bans, state laws restricting overly broad non‐disclosure agreements, affect stock price crash risk. Exploiting the staggered adoption of these bans across US states as a quasi‐natural experiment, we find that Toxic Secrecy Bans significantly reduce crash risk. Consistent with an employee‐voice mechanism, EEOC complaints and negative workplace disclosures increase following adoption. Effects are stronger among firms with lower employee satisfaction, weaker ethical cultures, and greater ownership monitoring, but weaker in high‐unemployment environments. The bans also improve firms' governance, social, and community performance. Overall, Toxic Secrecy Bans enhance transparency and constrain managerial bad‐news hoarding.