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

By Ramin P. Baghai, Rui C. Silva, Viktor Thell, Vikrant Vig. Journal of Finance, 2018

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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.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/924429b5732a95980da0ae5095989fa450a3f0cb