Key Talent Outflow and Stock Price Crash Risk: Evidence from the Rejection of the Inevitable Disclosure Doctrine

48 Pages Posted: 11 Dec 2019 Last revised: 10 Apr 2021

See all articles by Xin Liu

Xin Liu

School of Finance, Renmin University of China

Xiaoran Ni

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

Date Written: April 10, 2021

Abstract

We document that an increased likelihood of losing important stakeholders like key talents can lead to a higher stock price crash risk. Our test exploits U.S. state courts’ staggered rejections of the inevitable disclosure doctrine (IDD), which improves the ability of key talent to switch jobs. Relative to unaffected firms, we find that firms experience a significantly increased stock price crash risk after the states where they are headquartered reject the IDD. This effect is stronger for firms that face more industry competition and rely more heavily on key talents. Additional evidence shows that rejection of the IDD dampens firms’ competitive advantages to some extent. Overall, consistent with the view that a loss of key personnel can be an additional risk factor, our results suggest that an increased likelihood of key talent outflow can lead to bad news formation, which in turn results in stock price crashes.

Keywords: key talent outflow, crash risk, inevitable disclosure doctrine, labor mobility, stakeholder

JEL Classification: G32, G34, J01

Suggested Citation

Liu, Xin and Ni, Xiaoran, Key Talent Outflow and Stock Price Crash Risk: Evidence from the Rejection of the Inevitable Disclosure Doctrine (April 10, 2021). Available at SSRN: https://ssrn.com/abstract=3492463 or http://dx.doi.org/10.2139/ssrn.3492463

Xin Liu

School of Finance, Renmin University of China ( email )

Room 307A
Mingde Main Building, Renmin University of China
Beijing, Beijing 100872
China

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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