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 after firms are placed on negative credit watch or downgraded. Other negative events like missed earnings and equity sell recommendations do not trigger similar changes in networking activity, and results are not limited to firms in imminent financial distress. Our results appear consistent with a precautionary motive for networking. We find connection-making is associated with higher concurrent and future departures, though it also goes up for employees who stay. Reactions are stronger for more senior and skilled employees.

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