Labor Reactions to Credit Deterioration: Evidence from LinkedIn Activity

Abstract

We examine worker reactions to firms' credit deterioration using weekly anonymized networking activity on LinkedIn. We show workers start initiating more connections immediately following a negative credit event, even at firms that are far from bankruptcy. This 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 ratings, Credit deterioration, Labor & finance