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
April 27, 2014
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 and half of all sample CEOs maintain full-time executive employment despite bankruptcy filing. For these CEOs, we estimate the median change in CEO human capital to be zero. CEOs who do not maintain full-time executive employment experience a median estimated loss of human capital equal to five times their pre-departure compensation. While CEO loss of equity investment in the bankrupt firm is large regardless of career changes, greater pre-filing equity holdings are associated with a lower likelihood of voluntary departure. Greater creditor control rights are associated with a higher likelihood of both forced departure and failure to maintain full-time executive employment.
Number of Pages in PDF File: 56
Keywords: Human capital, bankruptcy costs, CEO turnover, post-bankruptcy employment, creditor control rights
JEL Classification: G33, G34working papers series
Date posted: August 31, 2012 ; Last revised: April 28, 2014
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