Provision of Management Incentives in Bankrupt Firms

47 Pages Posted: 17 Jul 2012 Last revised: 26 Dec 2015

See all articles by Vidhan K. Goyal

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Wei Wang

Smith School of Business

Date Written: December 21, 2015

Abstract

This paper examines the use of key employee retention and incentive plans (KERPs) in bankrupt firms. We find that firms in Chapter 11 are more likely to offer KERPs when firms are located in thicker employment markets, when creditors have strong control, and when bankrupt firms have complex operations and claim structures. Newly hired turnaround specialists are more likely to be covered by KERPs than incumbent CEOs. Objectives set by incentive plans are strongly linked to the probability of emergence. Our results suggest that KERPs are an efficient contracting solution to the problem of retaining and incentivizing key employees in bankruptcy.

Keywords: key employee retention plans, incentive contract, Chapter 11, compensation, retention bonuses, credito control, human capital

JEL Classification: G33, K22, M52, M54

Suggested Citation

Goyal, Vidhan K. and Wang, Wei, Provision of Management Incentives in Bankrupt Firms (December 21, 2015). Available at SSRN: https://ssrn.com/abstract=2109527 or http://dx.doi.org/10.2139/ssrn.2109527

Vidhan K. Goyal (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

Wei Wang

Smith School of Business ( email )

Queen's University-Smith School of Business
143 Union Street
Kingston, Ontario K7L 3N6
Canada

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