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Financial distress, corporate control, and management turnover

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  • Jostarndt, Philipp
  • Sautner, Zacharias
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    Abstract

    We empirically investigate the effect of financial distress on corporate ownership and control. Our analysis is based on a panel of 267 German firms that suffered from repeated interest coverage shortfalls between 1996 and 2004. We track each firm's development over the distress cycle with particular attention to corporate ownership, restructuring, and management turnover. We find a significant decrease in ownership concentration. Private investors gradually give up their dominating role and thereby cease to be an effective source of managerial control. By contrast, ownership representation by banks and outside investors almost doubles. Shareholdings by executive and non-executive directors also substantially increase but have no effect on managerial tenure. Forced management turnover is mostly initiated by outside investors and banks and often occurs subsequent to debt restructurings, block investments, and takeovers.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 32 (2008)
    Issue (Month): 10 (October)
    Pages: 2188-2204

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    Handle: RePEc:eee:jbfina:v:32:y:2008:i:10:p:2188-2204

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Corporate control Financial distress Restructuring;

    References

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    Cited by:
    1. Wu, YiLin, 2010. "What's in a name? What leads a firm to change its name and what the new name foreshadows," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1344-1359, June.
    2. Konstantaras, Konstantinos & Siriopoulos, Costas, 2011. "Estimating financial distress with a dynamic model: Evidence from family owned enterprises in a small open economy," Journal of Multinational Financial Management, Elsevier, vol. 21(4), pages 239-255, October.

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