It's Not So Bad: Director Bankruptcy Experience and Corporate Risk Taking
51 Pages Posted: 14 Sep 2018 Last revised: 28 Feb 2019
Date Written: February 26, 2019
This paper examines whether directors’ experiences influence corporate policy. Using a hand-collected dataset, we document that firms begin taking more risks when one of their directors experiences a corporate bankruptcy at another firm where they concurrently serve as a director. This increase is concentrated among directors experiencing shorter, less-costly bankruptcies, which also tend to not negatively affect directors' careers. The findings suggest directors, on average, lower their estimate of distress costs after experiencing a bankruptcy first-hand. Our findings also suggest that directors, particularly non-independent directors, influence firm policies not only in their monitoring role but also in their advisory capacity.
Keywords: directors, bankruptcy, risk, experience
JEL Classification: G34, G41, G32, G33
Suggested Citation: Suggested Citation