On the Scope of Managerial Discretion
11 Pages Posted: 27 Apr 2007
Date Written: April 25, 2007
In Paying for Performance in Bankruptcy, 155 U. Pa. L. Rev. 777 (2007), Yair Listokin argues that one option for compensating managers of a company in Chapter 11 should be to give them a debt interest in the company. This response argues that the assumptions motivating this proposal do not hold in many situations. Current trends in bankruptcy reorganization practice, such as the increase in creditor control and the development of the turnaround profession have already limited the agency costs at which Listokin's proposal is aimed. Debt holders no longer need worry that managers will use bankruptcy as a vehicle to extract value for shareholders. If anything, the challenge in the current environment is ensuring that the managers do not decrease the value of the company through actions designed to benefit the senior creditors.
Keywords: bankruptcy, corporate reorgannization, executive compensation
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