Download this Paper Open PDF in Browser

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

53 Pages Posted: 20 Oct 2016 Last revised: 10 Jul 2017

Ramin Baghai

Stockholm School of Economics

Rui Silva

London Business School - Department of Finance

Viktor Thell

Stockholm School of Economics

Vikrant Vig

London Business School

Date Written: June 2017

Abstract

The importance of skilled labor and the inalienability of human capital may expose firms to fragility stemming from possible loss of talent. Using detailed employer-employee matched data from Sweden, we document that firms lose their most skilled workers as they approach financial distress. Consequently, firms that rely more on talent operate with more conservative capital structures. In a quasi-experimental setting - employing a change in Swedish labor law that exogenously increases the mobility of workers - we find that as the risk of losing talent increases, financial leverage decreases.

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 (June 2017). 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

Rui Silva (Contact Author)

London Business School - Department of Finance ( email )

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

Viktor Thell

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Vikrant Vig

London Business School ( email )

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

Paper statistics

Downloads
190
Rank
133,639
Abstract Views
630