Working Paper: CEPR ID: DP10985
Authors: B. Espen Eckbo; Karin S. Thorburn; Wei Wang
Abstract: 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.
Keywords: career change; CEO compensation; labor market; capital; personal bankruptcy; costs; turnover; wealth loss
JEL Codes: G33; G34; M12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| poor operating performance (G32) | CEO turnover (M12) |
| financial fraud allegations (M48) | CEO turnover (M12) |
| creditor control rights during bankruptcy (K35) | forced turnover (J63) |
| CEO turnover (M12) | compensation loss (J30) |
| bankruptcy (K35) | labor market capital (J24) |
| founder incumbents (L26) | forced turnover (J63) |