I've been in this business for a very long time, and I have heard this my entire career from everyone except HR professionals and lawyers.
First, in jurisdictions like Ontario, there is a probation period during which a new employee can be fired for no reason at all. They can be a top performer and still get fired, and they have no recourse.
There are Ontario Human Rights exceptions to this, you can’t have a “Cowboys and Squaws Dress Day” and then fire the newly hired First Nations person who objects.
But I have been to a number of management training programs put on by HR consulting firms, and zero of them have said, “Be 100% certain about your new hired, because firing them is difficult and expensive if they don't work out.”
It’s true that after they’ve been around for a while, firing someone without cause entails some costs. But here in Ontario, they are surprisingly low. It’s possible to get sued, and win or lose that costs money and time, so most employers either go through a PIP process before letting someone go, or write a decent but not outrageously large cheque in exchange for agreement.
On the whole, “Avoid all but the most insanely qualified candidate because firing people is hard” is not anything I’ve heard from a professional. At least, not in my jurisdiction.
——-
The above is my recounting my factual experience. And now to my conjectures:
What I have heard from fellow managers has more to do with team morale. Hiring and firing people on a regular basis destabilizes the teams they join.
Hiring people without ensuring they're a decent fit sends a message that the company doesn't value competence.
When such things were in vogue, using bullshit a-hair-to-the-right-of-astrology tests like “How many weights do you need to use a balancing scale to...” acted as a signal to existing employees that they are super smart elite braniacs, and the company values that.
I suspect that a lot of risk-aversion with hiring is a combination of “apocraphyl stories going around the intrnet, but nobody is quoting actual research and case law,” combined with cultural signalling.
At my current employer, there are lots of people who don’t pass our interview system, but when we review a candidate, we are often less concerned with how capable they are today than with our estimate of how amenable they are to growing on the job.
That obviously applies a lot more to people coming in at a lower level, but I assure you that we value great people, but we aren’t insanely risk-averse. Being too risk-averse with hiring is a failure mode, just as being too risk-averse with engineering and product development.