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Labor Turnover, Information Production, and Bank Risk

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  • Lars Norden
  • Bernardus Van Doornik
  • Weichao Wang

Abstract

We investigate the theoretical mechanisms through which labor turnover adversely affects bank risk and performance. Using monthly matched employer-employee data from Brazil during 2003-2019, we find banks with higher labor turnover show lower risk buffers, higher loan growth, and lower profitability. These adverse effects align with the firm-specific human capital theory. Consistent with our identifying assumptions, the effects are stronger when turnover reduces experience and expertise, among loan officers, as well as across cities and banks. Placebo tests and further analyses confirm our results. The evidence suggests that high labor turnover impairs bank information production, increasing risk and lowering performance.

Suggested Citation

  • Lars Norden & Bernardus Van Doornik & Weichao Wang, 2025. "Labor Turnover, Information Production, and Bank Risk," Working Papers Series 626, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:626
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    File URL: https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/WP626v2.pdf
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