Discussion Paper Details

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Title: Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress

Author(s): Ramin P. Baghai, Rui C Silva, Viktor Thell and Vikrant Vig

Publication Date: February 2020

Keyword(s): bankruptcy, Capital Structure, Employees, financial distress and Talent

Programme Area(s): Financial Economics

Abstract: The importance of skilled labor and the inalienability of human capital expose firms to the risk of losing talent in critical times. Using Swedish micro-data, we document that firms lose workers with the highest cognitive and noncognitive skills as they approach bankruptcy. In a quasi-experiment, we confirm that financial distress is driving these results: following a negative export shock caused by exogenous currency movements, talent abandons the firm, but only if the exporter is highly leveraged. Consistent with talent dependence being associated with higher labor costs of financial distress, firms that rely more on talent have more conservative capital structures.

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Bibliographic Reference

Baghai, R, Silva, R, Thell, V and Vig, V. 2020. 'Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress'. London, Centre for Economic Policy Research.