How Costly Is Corporate Bankruptcy for the CEO?
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