Inside Debt and Recoveries in Bankruptcy
60 Pages Posted: 11 Apr 2016 Last revised: 2 Jul 2016
Date Written: June 13, 2016
I examine the theoretical prediction that executive inside debt results in higher recoveries in bankruptcy. Using a sample of bankrupt firms, I find that supplemental executive retirement plans are positively associated with recoveries to unsecured debt in bankruptcy. Firms where CEOs have inside debt at the sample mean experience $0.053 greater recoveries per dollar of debt in the event of bankruptcy relative to firms where the CEO does not have inside debt. Consistent with theory, I also document that inside debt is positively related to efforts to preserve liquidity as bankruptcy approaches (e.g., cuts to R&D expenditures).
Keywords: Inside Debt, Bankruptcy, Pensions, Deferred Compensation, Executive Compensation
JEL Classification: G33, J33
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