DP10985 How costly is corporate bankruptcy for the CEO?
Author(s): | B Espen Eckbo, Karin S Thorburn, Wei Wang |
Publication Date: | December 2015 |
Keyword(s): | career change, CEO compensation, labor market capital, personal bankruptcy costs, turnover, wealth loss |
JEL(s): | G33, G34, M12 |
Programme Areas: | Financial Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=10985 |
We examine CEO career and compensation changes for 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) appear to effect 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.