Labor Reactions to Credit Deterioration: Evidence from LinkedIn Activity

Abstract

We examine workers' reactions to signals of their firms' credit deterioration using anonymized networking activity on LinkedIn. We show significant increases in weekly connection formation following the announcement of a negative credit watch. More senior and more skilled workers have the strongest reactions, and increased connection activity appears for both workers who leave and workers who stay at the firm. Positive credit news and non-credit economic news like missed earnings do not trigger similar changes in networking activity. Our results appear consistent with a precautionary motive for networking.

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