Do Golden Parachutes Matter? Evidence from Firms that Ultimately Filed for Bankruptcy

43 Pages Posted: 14 Apr 2019

See all articles by Pankaj K. Maskara

Pankaj K. Maskara

Eastern Kentucky University - Accounting, Finance, & Information Systems; Nova Southeastern University

Laura S. Miller

Rufus, Miller & Associates, A.C.

Date Written: March 16, 2017

Abstract

We study bankruptcy outcomes of 275 firms and find that hiring CEOs with golden parachutes (GPs) during financial distress is associated with a lower probability of liquidation. In contrast, firms led by incumbent CEOs with GPs are more likely to be liquidated, as are firms led by new CEOs without GPs. Since GPs are nullified during bankruptcy, the observed relationship cannot be attributed to an explicit incentive effect. Rather, we contend that during financial distress GPs help recruit reputable CEOs who, even without explicit incentives, continue to maximize shareholder value due to implicit reputational and career concerns.

Keywords: Golden parachute, bankruptcy outcome, implicit incentive, CEO compensation, reputational capital, corporate governance

JEL Classification: G33. G34

Suggested Citation

Maskara, Pankaj K. and Miller, Laura S., Do Golden Parachutes Matter? Evidence from Firms that Ultimately Filed for Bankruptcy (March 16, 2017). Quarterly Review of Economics and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3354827

Pankaj K. Maskara (Contact Author)

Eastern Kentucky University - Accounting, Finance, & Information Systems ( email )

United States

Nova Southeastern University ( email )

3301 College Avenue
Ft. Lauderdale, FL 33314
United States

Laura S. Miller

Rufus, Miller & Associates, A.C. ( email )

WV
United States

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