47 Pages Posted: 31 Aug 2012 Last revised: 12 Feb 2016
Date Written: February 12, 2016
We examine chief executive officer (CEO) career and compensation changes for large firms filing for Chapter 11. One-third of the incumbent CEOs maintain executive employment, and these CEOs experience a median compensation change of zero. However, incumbent CEOs leaving the executive labor market suffer a compensation loss with a median present value until age 65 of $7 million (five times pre-departure compensation). The likelihood of leaving decreases with profitability and CEO share ownership. Furthermore, creditor control rights during bankruptcy (through debtor-in-possession financing and large trade credits) are associated with CEO career change. Despite large equity losses (median $11 million for incumbents who stay until filing), the median incumbent does not reduce his stock ownership as the firm approaches bankruptcy.
Keywords: labor market capital, personal bankruptcy costs, turnover, career change, CEO compensation, wealth loss
JEL Classification: G33, G34, M12
Suggested Citation: Suggested Citation
Eckbo, B. Espen and Thorburn, Karin S. and Wang, Wei, How Costly Is Corporate Bankruptcy for the CEO? (February 12, 2016). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2138778 or http://dx.doi.org/10.2139/ssrn.2138778
By Alex Edmans