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

62 Pages Posted: 20 Oct 2016 Last revised: 20 Apr 2018

Ramin Baghai

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); Swedish House of Finance

Rui Silva

London Business School - Department of Finance

Viktor Thell

Stockholm School of Economics

Vikrant Vig

London Business School

Date Written: April 2018

Abstract

The importance of skilled labor and the inalienability of human capital may expose firms to the risk of losing talent in critical times. Using Swedish employer-employee matched data, we document that firms lose their most skilled workers as they become financially distressed. In a quasi-experiment involving export-intensive firms with different capital structures, we confirm that financial distress is driving these results. Following a negative export shock caused by exogenous currency movements, talented workers abandon the firm, but only if the exporter is highly leveraged. Finally, we observe that firms that rely more on talent have more conservative capital structures, consistent with the interpretation that talent dependence is associated with higher labor costs of financial distress.

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 (April 2018). Available at SSRN: https://ssrn.com/abstract=2854858 or http://dx.doi.org/10.2139/ssrn.2854858

Ramin Baghai

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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

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