Abstract

http://ssrn.com/abstract=2276753
 
 

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Human Capital Loss in Corporate Bankruptcy


John R. Graham


Duke University; National Bureau of Economic Research (NBER)

Hyunseob Kim


Cornell University - Samuel Curtis Johnson Graduate School of Management

Si Li


Wilfrid Laurier University - School of Business & Economics

Jiaping Qiu


McMaster University - Michael G. DeGroote School of Business

March 13, 2013


Abstract:     
This paper quantifies the “human costs of bankruptcy” by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau’s LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.

Number of Pages in PDF File: 37

Keywords: Bankruptcy, costs of financial distress, human capital, wage loss, capital structure

JEL Classification: G3, G32, G33, J24, J31, J33

working papers series


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Date posted: June 10, 2013 ; Last revised: August 5, 2013

Suggested Citation

Graham, John R. and Kim, Hyunseob and Li, Si and Qiu, Jiaping, Human Capital Loss in Corporate Bankruptcy (March 13, 2013). Available at SSRN: http://ssrn.com/abstract=2276753 or http://dx.doi.org/10.2139/ssrn.2276753

Contact Information

John Robert Graham
Duke University ( email )
Box 90120
Durham, NC 27708-0120
United States
919-660-7857 (Phone)
919-660-8030 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Hyunseob Kim (Contact Author)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States

Si Li
Wilfrid Laurier University - School of Business & Economics ( email )
Waterloo, Ontario N2L 3C5
Canada
Jiaping Qiu
McMaster University - Michael G. DeGroote School of Business ( email )
1280 Main Street West
Hamilton, L8S 4M4 Ontario
Canada
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