The crash consequences of inalienable human capital

Purpose Human capital has an inalienable nature, and the departure of key talents could make a firm's capital less profitable. Design/methodology/approach Our test exploits USA state courts’ staggered rejections of the inevitable disclosure doctrine (IDD), which improves the ability of key talent to switch jobs. Findings In a difference-in-differences setting, we find that relative to unaffected firms, firms experience a significantly increased stock price crash risk after the states where they are headquartered reject the IDD. Originality/value Overall, consistent with the view that a loss of key personnel can be an additional risk factor, our results suggest that an increased likelihood of key talent outflow can lead to the formation of bad news, which in turn results in stock price crashes.