How Costly is Corporate Bankruptcy for Top Executives?
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
September 1, 2012
Tuck School of Business Working Paper No. 2012-109
We provide estimates of CEO human capital losses from corporate bankruptcy which, for the first time, account for CEO post-bankruptcy employment. Fully half of the incumbent CEOs maintain full-time executive employment with a median estimated labor income loss of zero. CEOs who fail to maintain executive employment experience a median loss equal to five times their pre-departure labor income. Executives with greater predicted income loss are more likely to be forced out, suggesting that these managers were earning supra-competitive rents. The proportion equity pay in the CEO's compensation package is decreasing in the predicted income loss, similar to a labor-contract hedge. Finally, greater stock ownership lowers the probability that the CEO leaves the distressed firm voluntarily.
Number of Pages in PDF File: 55
Keywords: Human capital, bankruptcy costs, CEO turnover, post-bankruptcy employment, creditor control rights
JEL Classification: G33, G34working papers series
Date posted: August 31, 2012
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