Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress

134 Pages Posted: 20 Oct 2016 Last revised: 14 Jan 2020

See all articles by Ramin Baghai

Ramin Baghai

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swedish House of Finance

Rui Silva

London Business School - Department of Finance

Viktor Thell

Swedish FSA

Vikrant Vig

London Business School

Multiple version iconThere are 2 versions of this paper

Date Written: January 14, 2020

Abstract

The importance of skilled labor and the inalienability of human capital expose firms to the risk of losing talent in critical times. Using Swedish micro-data, we document that firms lose workers with the highest cognitive and noncognitive skills as they approach bankruptcy. In a quasi-experiment, we confirm that financial distress is driving these results: following a negative export shock caused by exogenous currency movements, talent abandons the firm, but only if the exporter is highly leveraged. Consistent with talent dependence being associated with higher labor costs of financial distress, firms that rely more on talent have more conservative capital structures.

Keywords: Bankruptcy, Talent, Distress, Costs of Financial Distress, Labor Fragility, Leverage

JEL Classification: G32, G33, J63 M54

Suggested Citation

Baghai, Ramin and Silva, Rui and Thell, Viktor and Vig, Vikrant, Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress (January 14, 2020). Available at SSRN: https://ssrn.com/abstract=2854858 or http://dx.doi.org/10.2139/ssrn.2854858

Ramin Baghai

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Rui Silva (Contact Author)

London Business School - Department of Finance ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Viktor Thell

Swedish FSA ( email )

Box 7821
Brunnsgatan 3
Stockholm
Sweden

Vikrant Vig

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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