Labor Reactions to Credit Deterioration: Evidence from LinkedIn Activity

56 Pages Posted: 10 Oct 2019 Last revised: 14 Sep 2020

See all articles by Jeff Gortmaker

Jeff Gortmaker

affiliation not provided to SSRN

Jessica Jeffers

University of Chicago - Booth School of Business

Michael Lee

Federal Reserve Banks - Federal Reserve Bank of New York

Date Written: January 15, 2020

Abstract

We examine workers’ reactions to signals of their firms’ credit deterioration using anonymized networking activity on LinkedIn. Connection formation significantly increases after firms are placed on negative credit watch. We document labor reactions to credit events across the entire distribution of credit ratings, and propose a human capital risk channel to explain why workers respond even when the firm is far from default. Connection activity is associated with more contemporaneous and future departures, and also significant for those that remain, consistent with a precautionary motive for networking. Furthermore, we find reactions are stronger for senior and skilled workers. Firms with stronger labor reactions to credit events also experience worse turnover and profitability, up to one year after the event.

Keywords: Network formation, Credit ratings, Credit deterioration, Labor & finance

Suggested Citation

Gortmaker, Jeff and Jeffers, Jessica and Lee, Michael, Labor Reactions to Credit Deterioration: Evidence from LinkedIn Activity (January 15, 2020). Available at SSRN: https://ssrn.com/abstract=3456285 or http://dx.doi.org/10.2139/ssrn.3456285

Jeff Gortmaker

affiliation not provided to SSRN

Jessica Jeffers (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Michael Lee

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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