All's Fair in Love, War & Bankruptcy? Corporate Governance Implications of CEO Turnover in Financial Distress

28 Pages Posted: 26 Oct 2005

See all articles by Ethan Bernstein

Ethan Bernstein

Harvard Business School - Organizational Behavior


Prior discussions of management turnover during financial distress have examined bankrupt and non-bankrupt firms as distinct groupings with little overlap. Separately investigating rates of turnover in-bankruptcy and out-of-bankruptcy, without a direct comparison between the two, has resulted in a narrowing of the accepted influence of bankruptcy law to post-petition, in-court decisions. Based on new evidence of CEO turnover in 2001, I argue empirically that this distinction between in-court and out-of-court restructuring has become meaningless from a governance perspective. In 2001, filing for bankruptcy did not change the rate of CEO turnover when one controls for financial condition. This statistically significant finding indicates that the shadow of bankruptcy has lengthened, making bankruptcy law a central tenet of governance policy regardless of whether a Chapter 11 petition is ever filed. After presenting these results, this article considers the implications of these results on the changing perceptions of the role of CEOs and the evolution of the multi-pronged U.S. corporate governance system.

Keywords: Bankruptcy, Restructuring, CEO Turnover, Corporate Governance

JEL Classification: G33, G34, J6, J63, K2, K22, M1, M5

Suggested Citation

Bernstein, Ethan S, All's Fair in Love, War & Bankruptcy? Corporate Governance Implications of CEO Turnover in Financial Distress. Stanford Journal of Law, Business, and Finance, Vol. 11, p. 298, 2006, Available at SSRN: or

Ethan S Bernstein (Contact Author)

Harvard Business School - Organizational Behavior ( email )

Soldiers Field
Boston, MA 02163
United States
6174964626 (Phone)


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