We examine whether criminal records of CEOs and rank-and-file employees are associated with firms’ likelihood of bankruptcy, and whether lenders adjust their required cost of debt accordingly. We use a nationwide sample of private firms and criminal registers covering all firm employees. We find that the likelihood of bankruptcy is positively associated with the CEO’s criminal record and the proportion of employees with criminal records. We find some, though less robust, evidence that lenders price a firm’s loan higher when the firm’s CEO has a criminal record and when more of the employees have criminal records. The results suggest that the characteristics of firm employees represent a risk that, to some extent, is priced by lenders.

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This paper examines employee flows and the association with firm earnings and interest rates. We use administrative employer–employee matched panel data from Denmark spanning 17 years and hence exploit actual data on employee arrivals (labor inflows) and departures (labor outflows). Three main findings emerge. First, we condition by firms’ economic conditions. Departures predict earnings increases for prior‐year loss firms, while they predict earnings decreases for prior‐year profit firms, suggesting that this conditioning can help explain the mixed results in the literature. Arrivals predict earnings increases, though only for prior‐year profit firms. These effects are stronger for high‐paid employees than for low‐paid ones. Second, the effects of departures are generally larger than the effects of arrivals, consistent with departures disrupting operations. Third, we find that lenders price employee flow information but only for departures of high‐paid employees, despite the predictive ability of the flow of other employees for future earnings. Overall our results suggest that employee flows predict firm financial performance but are only partially priced by lenders.

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