Fighting for Talent: Risk-Taking, Corporate Volatility and Organisation Change

Guido Friebel and Mariassunta Giannetti

Economic Journal, 2009, vol. 119, issue 540, pages 1344-1373

Abstract: We show that access to finance may affect firms through the labour market. Talented workers want to realise their ideas but also seek insurance against income risk. Large firms default less often than small firms but they investigate more thoroughly and reject more good ideas. With easier access to consumer credit, talented workers become less averse to the income risk of working in small firms. Thus, small firms gain an advantage on the labour market, their profit volatility increases and large firms react by creating spin-offs. Existing and original empirical evidence is consistent with the implications of our theory. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2009

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