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Human Capital Loss In Corporate Bankruptcy

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  • John R. Graham
  • Hyunseob Kim
  • Si Li
  • Jiaping Qiu
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    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.

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    File URL: ftp://ftp2.census.gov/ces/wp/2013/CES-WP-13-37.pdf
    File Function: First version, 2013
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    Bibliographic Info

    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 13-37.

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    Length: 38 pages
    Date of creation: Jul 2013
    Date of revision:
    Handle: RePEc:cen:wpaper:13-37

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    Related research

    Keywords: Bankruptcy; Costs of financial distress; Human capital; Wage loss; Capital structure;

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