Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 121, Issue 1, Pages 210-229Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2016.03.005
Keywords
Founder-incumbent CEO; Executive labor market; Bankruptcy costs; Forced turnover; CEO compensation
Categories
Funding
- Social Sciences and Humanities Research Council of Canada
- Tuck's Lindenauer Center for Corporate Governance
- Center for Applied Research at Norwegian School of Economics
- Queen's School of Business Research Program
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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. (c) 2016 Elsevier B.V. All rights reserved.
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