Labor Reactions to Financial Distress: Evidence from LinkedIn Activity

Abstract

We investigate workers' reactions to signals of their firms' financial condition using anonymized networking activity on LinkedIn. We show significant increases in weekly connection formation following the announcement of possible impending downgrades to a firm's credit rating. More senior, more skilled, and less mobile workers have the strongest reactions, but increased connection activity appears in both workers who leave and workers who stay at the firm. Reactions to firms' financial conditions are asymmetric: we do not find evidence of a change in networking activity for positive credit rating news. We also do not find similar reactions following economic signals such as missed earnings. These results point to possible unique labor implications of debt financing.