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

Baghai, R P, Silva, R, Thell, V and Vig, V (2021) Talent in Distressed Firms: Investigating the Labor Costs of Financial Distress. Journal of Finance, 76 (6). pp. 2907-2961. ISSN 0022-1082 OPEN ACCESS


The importance of skilled labor and the inalienability of human capital expose firms to the risk of losing talent at critical times. Using Swedish microdata, 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 drives 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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Item Type: Article
Subject Areas: Finance
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We are grateful for financial support from the Deloitte Institute for Innovation and Entrepreneurship, the Research and Materials Development Fund at the London Business School, and the Hans Dalborg foundation. Thell gratefully acknowledges financial support from the Swedish Bank Research Foundation, as well as the Jan Wallander and Tom Hedelius Foundation. This project has also received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation program (grant agreement No. 679747).

Funder Name: European Research Council
Date Deposited: 21 Oct 2021 07:16
Date of first compliant deposit: 21 Oct 2021
Last Modified: 18 Jul 2024 01:51
URI: https://lbsresearch.london.edu/id/eprint/2022

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