This paper investigates whether and how employee-generated reviews inform market participants’ perceptions of credit risk in the credit default swap (CDS) market. While prior literature has primarily explored the role of employee perceptions, captured via sentiment, satisfaction ratings and textual reviews, in equity markets, we argue that CDS spreads offer a cleaner setting to isolate downside risk signals associated with their perceptions. Leveraging a novel dataset of high-frequency employee reviews from Glassdoor, we construct a weekly CDS valuation metric that integrates numerical ratings, sentiment, and risk-related indicators extracted from written comments. Our model improves the cross-sectional explanatory power of CDS spreads by nearly 18%, outperforming traditional structural and ESG-adjusted benchmarks. We identify two distinct informational channels through which employee reviews affect credit spreads: a sentiment-based behavioral channel and an informational channel through which employees disclose latent risks before such issues are reflected in formal financial statements or ESG ratings. Using exogenous affective shocks, blockbuster movie releases and aviation fatalities, as instruments, we provide the first causal evidence that shifts in employee sentiment influence CDS pricing independently of firm fundamentals and ESG ratings. Furthermore, heterogeneity analyses reveal that the credit relevance of human capital varies across sectors and ESG components, with particularly strong effects in labor-intensive industries and during periods of heightened uncertainty. Our findings reposition human capital from a peripheral ESG consideration to a dual-channel, firm-level determinant of credit risk, offering a scalable framework for integrating soft information into credit valuation models.
