HUMAN CAPITAL LOSS IN CORPORATE BANKRUPTCY

John R. Graham, Hyunseob Kim, Si Li and Jiaping Qiu

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: This paper quantifies the “human costs of bankruptcy” by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau’s LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.

Keywords: Bankruptcy; Costs of financial distress; Human capital; Wage loss; Capital structure (search for similar items in EconPapers)
JEL-codes: G3 G32 G33 J24 J31 J33 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2013-07
New Economics Papers: this item is included in nep-hrm, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://www2.census.gov/ces/wp/2013/CES-WP-13-37.pdf First version, 2013 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:13-37

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