Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress
53 Pages Posted: 20 Oct 2016 Last revised: 10 Jul 2017
Date Written: June 2017
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: Suggested Citation