Boarding a Sinking Ship? An Investigation of Job Applications to Distressed Firms

Abstract:     
We use novel data from a leading online job search platform to examine the impact of corporate distress on firms’ ability to attract job applicants. Survey responses suggest that job seekers accurately perceive firms’ financial health, as measured by the companies’ credit default swap prices. Analyzing responses to job postings by major financial firms during the recent financial crisis, we find that an increase in an employer’s distress results in fewer and lower quality applicants. These effects are particularly evident when the social safety net provides workers with weak protection against unemployment and for positions requiring advanced training.

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