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Journal of Financial Economics Vol. 121 No. 1 2016

How costly is corporate bankruptcy for the CEO?

B. Espen Eckbo1,2; Karin S. Thorburn2,3; Wei Wang4

1 Dartmouth College · 2 Norwegian School of Economics · 3 Centre for Economic Policy Research · 4 Queen's University

open access

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.

DOI
10.1016/j.jfineco.2016.03.005
Volume
121
Issue
1
Pages
210-229
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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