Labor Reactions to Credit Deterioration: Evidence from LinkedIn Activity
86 Pages Posted: 10 Oct 2019 Last revised: 21 Mar 2022
Date Written: March 1, 2022
We analyze worker reactions to firms' credit deterioration. Using weekly anonymized networking activity on LinkedIn, we show workers initiate more connections immediately following a negative credit event, even at firms far from bankruptcy. Our results suggest that workers are driven by concerns about both unemployment and future prospects at their firm. Heightened networking activity is associated with contemporaneous and future departures, especially at highly-rated firms. Other negative events like missed earnings and equity sell recommendations do not trigger similar reactions. Overall, our results indicate that the latent build-up of connections triggered by credit deterioration represents a source of fragility for firms.
Keywords: Network formation, Credit deterioration, Labor & finance, Financial distress, Labor fragility
JEL Classification: G32, G33, J6, D85, M50
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