How Costly Is Corporate Bankruptcy for the CEO?
B. Espen Eckbo
Dartmouth College - Tuck School of Business; European Corporate Governance Institute (ECGI)
Karin S. Thorburn
Norwegian School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Queen's School of Business; University of Pennsylvania - The Wharton School
January 30, 2015
Tuck School of Business Working Paper No. 2012-109
We examine CEO career and human capital changes around Chapter 11 bankruptcy filings for a large sample of publicly traded firms. One-third of the incumbent CEOs maintain full-time executive employment, with an estimated median compensation change of zero. The remaining two-thirds incumbents face a median present value income loss until age 65 equal to five times their pre-departure income. Incumbents who depart without a new executive position are significantly better compensated than their incoming replacements. Greater creditor control rights in bankruptcy are associated with a higher likelihood of both forced departure and failure to maintain full-time executive employment. Incumbents who stay on until filing tend not to reduce their stock holdings despite large equity losses.
Number of Pages in PDF File: 49
Keywords: CEO human capital, personal bankruptcy costs, turnover, career change, incentive-based pay, wealth loss, creditor control rights
JEL Classification: G33, G34, M12
Date posted: August 31, 2012 ; Last revised: February 1, 2015
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