Turned Down and Taking Off? Rejection and Turnover in Internal Talent Markets

Internal talent markets—created when firms post open jobs and invite current employees to apply—enhance the value of an organization's human capital by generating complementary person–job matches. Yet these markets generate more internal rejections than matches, as not all internal applicants are hired. We develop theory to explain when rejections are more or less likely to deplete an organization's human capital resources through voluntary turnover. Drawing on the extant intraorganizational mobility literature, we argue that variations in post-rejection turnover are shaped by the information that the market provides employees about their likelihood of future internal advancement, despite being rejected in the present. Specifically, we argue that hiring manager decisions about whom to interview and hire provide information to rejected internal candidates about their ability to meet the criteria to be hired for similar jobs in the future and the likelihood that those jobs will be filled internally. Analyzing 9,355 rejections in a single firm over a five-year period, we find that rejected employees are significantly less likely to exit when they are interviewed by the hiring manager (compared to being rejected earlier) and when they are rejected in favor of another internal candidate (compared to an external candidate).