On the Scope of Managerial Discretion

11 Pages Posted: 27 Apr 2007

See all articles by Robert K. Rasmussen

Robert K. Rasmussen

University of Southern California Gould School of Law

Date Written: April 25, 2007

Abstract

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

Suggested Citation

Rasmussen, Robert K., On the Scope of Managerial Discretion (April 25, 2007). Vanderbilt Law and Economics Working Paper No. 07-12. Available at SSRN: https://ssrn.com/abstract=982673 or http://dx.doi.org/10.2139/ssrn.982673

Robert K. Rasmussen (Contact Author)

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089-0071
United States
213-740-6473 (Phone)
213-740-5502 (Fax)

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