DP13198 Teams and Bankruptcy

Author(s): Ramin P. Baghai, Rui C Silva, Luofu Ye
Publication Date: September 2018
Date Revised: August 2019
Keyword(s): bankruptcy, creative destruction, Innovation, labor productivity, Team-specific human capital, Teams, Teamwork
JEL(s): G33, J24, J63, O31, O32
Programme Areas: Labour Economics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13198

We study how the human capital embedded in teams is reallocated in corporate bankruptcies using data on US inventors. We find that bankruptcies reduce team stability. After a bankruptcy, team-dependent inventors produce fewer and less impactful patents. This points to the loss of team-specific human capital as a cost of resource reallocation through bankruptcy. However, this cost is limited by the ability of the labor market and the market for corporate control to preserve teams. Inventors with past collaboration are likely to move jointly to a new firm after bankruptcy, and the productivity of team inventors that relocate together increases.