CEO Turnover and Bankrupt Firms’ Emergence

Journal of Business Finance and Accounting, Forthcoming

49 Pages Posted: 13 Jul 2020 Last revised: 25 Nov 2020

See all articles by Beiqi Lin

Beiqi Lin

University of Queensland - Business School

Chelsea Liu

University of Adelaide - Business School

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Qing Zhou

Department of Applied Finance and Actuarial Studies, Macquarie University

Multiple version iconThere are 2 versions of this paper

Date Written: June 18, 2020

Abstract

This paper examines whether CEO turnover within a bankrupt firm predicts the firm’s likelihood to reemerge from bankruptcy proceedings as a reorganized entity. Using 836 bankruptcy cases filed under Chapter 11 of the United States Bankruptcy Code from 1989 through 2016, we show that firms that undergo CEO turnover are significantly more likely to emerge from Chapter 11 proceedings. We conduct further analyses to examine the potential mechanisms through which CEO turnover is linked to a firm’s chance of emergence. Consistent with the perspective that CEO turnover constitutes an observable event that can signal creditor support, we find that CEO turnover in bankrupt firms is positively associated with debtor-in-possession financing. Additionally, there is a significant increase in managerial quality post-turnover. Further, we document that the predictive power of CEO turnover is stronger in bankruptcy cases with greater uncertainty, such as in free-fall bankruptcies, where there is less pre-existing agreement between the firm and its creditors. Overall, our findings provide valuable insight into external investors and stakeholder groups, whose interests are significantly impacted by corporate bankruptcies.

Keywords: CEO Turnover, Bankruptcy, Firm Emergence, Chapter 11 Filings, Corporate Survival

JEL Classification: G33, G34

Suggested Citation

Lin, Beiqi and Liu, Chelsea and Tan, Kelvin Jui Keng and Zhou, Qing, CEO Turnover and Bankrupt Firms’ Emergence (June 18, 2020). Journal of Business Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3630224 or http://dx.doi.org/10.2139/ssrn.3630224

Beiqi Lin (Contact Author)

University of Queensland - Business School ( email )

St Lucia
Brisbane, Queensland 4072
Australia

Chelsea Liu

University of Adelaide - Business School ( email )

10 Pulteney Street
University of Adelaide, South Australia 5005
Australia

Kelvin Jui Keng Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Qing Zhou

Department of Applied Finance and Actuarial Studies, Macquarie University ( email )

Sydney, NSW
Australia

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