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; HKUST
Tuck School of Business Working Paper No. 2012-109
We examine career and compensation changes for CEOs of public firms filing for Chapter 11 bankruptcy. One-third of the incumbent CEOs - whether company founder or not - maintain executive employment (at the restructured firm or elsewhere). Incumbents maintaining executive employment experience a median compensation change of zero. For the remaining incumbents, we estimate a total compensation loss with a present value of five times the pre-departure compensation. The likelihood that the CEO leaves the executive labor market decreases with firm profitability and CEO share ownership, and it is higher for firms receiving debtor-in-possession financing. Despite large equity losses, the median incumbent does not reduce his stock ownership as the firm approaches bankruptcy.
Number of Pages in PDF File: 40
Keywords: labor market capital, personal bankruptcy costs, turnover, career change, CEO compensation, wealth loss
JEL Classification: G33, G34, M12
Date posted: August 31, 2012 ; Last revised: September 4, 2015
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