CEO Turnover and Bankrupt Firms’ Emergence

30 Pages Posted: 23 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

Macquarie University

Multiple version iconThere are 2 versions of this paper

Date Written: October-November 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 preexisting 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: bankruptcy, CEO turnover, Chapter 11 filings, corporate survival, firm emergence

Suggested Citation

Lin, Beiqi and Liu, Chelsea and Tan, Kelvin Jui Keng and Zhou, Qing, CEO Turnover and Bankrupt Firms’ Emergence (October-November 2020). Journal of Business Finance & Accounting, Vol. 47, Issue 9-10, pp. 1238-1267, 2020, Available at SSRN: https://ssrn.com/abstract=3734975 or http://dx.doi.org/10.1111/jbfa.12482

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

Macquarie University

North Ryde
Sydney, New South Wales 2109
Australia

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