Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress
62 Pages Posted: 20 Oct 2016 Last revised: 20 Apr 2018
Date Written: April 2018
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
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