Temporary employment and financial distress in times of crisis

Abstract

Purpose

This study investigates the impact of temporary employment on various forms of financial distress for firms during the COVID-19 pandemic.

Design/methodology/approach

The authors apply a logit model to evaluate the differences in the probabilities of experiencing financial distress for firms with or without temporary reemployment and for firms with different intensities of temporary workers. As an additional test, an ordinal logistic model is applied to reflect different degrees of financial distress.

Findings

Our main results indicate that firms with temporary employment are more likely to experience financial distress than firms without temporary employment, regardless of the severity of financial distress. Among firms with temporary employment, our analysis suggests that a firm’s likelihood of experiencing financial distress depends on its relative share (quantile) of temporary workers.

Practical implications

Our findings provide valuable insights for evaluating the impact of temporary employment on firms’ vulnerability during the COVID-19 crisis and suggest strategies for firms to enhance resilience to similar future crises.

Originality/value

Our study is the first one that explores the relationship between temporary employment and financial distress. Firms around the world have been pursuing flexible labor to improve resilience and firm performance. The pandemic may further ramify this trend, creating a future “new normal” regarding employment relationships, job segmentation and gender equality in the job market. This article adds a new dimension to the evaluation of the new normal, which may help firms evaluate the consequences of temporary employment, especially in times of crisis.

Citation

Zhang, D., Wellalage, N. and Fernandez, V. (2024), "Temporary employment and financial distress in times of crisis", Journal of Risk Finance, Vol. 25 No. 4, pp. 602-628. https://doi.org/10.1108/JRF-09-2023-0226