Human Capital Outflow and Stock Price Crashes: Evidence from the Rejection of the Inevitable Disclosure Doctrine

52 Pages Posted: 11 Dec 2019

See all articles by Xin Liu

Xin Liu

University of Bath

Xiaoran Ni

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE); Xiamen University - School of Economics

Date Written: November 24, 2019

Abstract

We present evidence that human capital outflow can lead to a higher likelihood of stock price crashes. Our test exploit US state courts’ staggered rejection of the inevitable disclosure doctrine (IDD), which improves employees’ ability to switch employers. We find that after the rejection of IDD, firms headquartered in these states experience a significant increase in stock price crash risk relative to unaffected firms. This effect is stronger for firms under server financial distress, facing fierce industry competition, and relying heavily on human capitals. Overall, our results support the view that losing key talents is an important determinant for stock price crashes.

Keywords: human capital outflow, stock price crash risk, Inevitable disclosure doctrine, labor mobility, financial distress

JEL Classification: G32, G34, J01

Suggested Citation

Liu, Xin and Ni, Xiaoran, Human Capital Outflow and Stock Price Crashes: Evidence from the Rejection of the Inevitable Disclosure Doctrine (November 24, 2019). Available at SSRN: https://ssrn.com/abstract=3492463 or http://dx.doi.org/10.2139/ssrn.3492463

Xin Liu

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Xiaoran Ni (Contact Author)

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

D 204, Economics Building
Xiamen, Fujian 361005
China

Xiamen University - School of Economics ( email )

China

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