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Talent in distressed firms: labor fragility and capital structure

Subject

Finance

Publishing details

Social Sciences Research Network

Authors / Editors

Baghai R; Silva R; Thell V; Vig V

Biographies

Publication Year

2015

Abstract

The importance of skilled labor and the inalienability of human capital may expose firms to fragility stemming from possible loss of talent. Using detailed employer-employee matched data from Sweden, we document that firms lose their most skilled workers as they approach financial distress. Consequently, firms that rely more on talent operate with more conservative capital structures. In a quasi-experimental setting - employing a change in Swedish labor law that exogenously increases the mobility of workers - we find that as the risk of losing talent increases, financial leverage decreases.

Keywords

Bankruptcy; Talent; Distress; Costs of financial distress; Labor fragility; Leverage

Series

Social Sciences Research Network