Evidence on the Effect of Financial Distress on Corporate Organizational Structure From a Managerial Qualifications Perspective

Abstract

This paper introduces a managerial skills dimension into analysis of corporate financial distress and corporate restructuring. We use an ordered logit model to examine how manager qualifications affect whether a company declares bankruptcy, is liquidated or reorganized, and how different forms of organizational structure emerge after companies experience distress. The current paper uncovers additional evidence that manager qualifications are important during financial distress. However, we determine that managerial skills are not panacea and beyond a certain limit no talent and skills can save a failing firm from bankruptcy.

Keywords: Bankruptcy, Manager Qualifications, Restructuring

JEL Classification: G33, G34