Finance Papers

Document Type

Journal Article

Date of this Version

7-2016

Publication Source

Journal of Financial Economics

Volume

121

Issue

1

Start Page

210

Last Page

229

DOI

10.1016/j.jfineco.2016.03.005

Abstract

We examine chief executive officer (CEO) career and compensation changes for large firms filing for Chapter 11. One-third of the incumbent CEOs maintain executive employment, and these CEOs experience a median compensation change of zero. However, incumbent CEOs leaving the executive labor market suffer a compensation loss with a median present value until age 65 of $7 million (five times pre-departure compensation). The likelihood of leaving decreases with profitability and CEO share ownership. Furthermore, creditor control rights during bankruptcy (through debtor-in-possession financing and large trade credits) are associated with CEO career change. Despite large equity losses (median $11 million for incumbents who stay until filing), the median incumbent does not reduce his stock ownership as the firm approaches bankruptcy.

Copyright/Permission Statement

© 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Comments

Author Karin S.Thorburn is a full time faculty member of Norwegian School of Economics. She is a visiting professor in the Finance Department of the Wharton School at the University of Pennsylvania.

Keywords

founder-incumbent CEO, executive labor market, bankruptcy costs, forced turnover, CEO compensation

Embargo Date

3-23-2019

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Date Posted: 27 November 2017

This document has been peer reviewed.