This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Control Benefits and CEO Discipline in Automatic Bankruptcy Auctions

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Eckbo, B Espen
Thorburn, Karin S

Additional information is available for the following registered author(s):

Abstract

We argue that the existence of CEO private control benefits complements managerial reputation in counteracting costly shareholder risk-shifting incentives during severe financial distress, when job-loss may be imminent. We examine this argument empirically using bankruptcy filings in Sweden, where a filing automatically terminates CEO employment and requires the firm to be sold in an open auction. The median CEO income loss is a dramatic 40%, suggesting that bankruptcy filing damages CEO reputation. Empirical proxies for both CEO reputation and control benefits are significant determinants of the probability of the CEO being rehired by the buyer in the auction, as predicted. Moreover, we find that the rehired CEOs generate a post-bankruptcy accounting performance at par with industry rivals. The surprisingly strong survival characteristics of the reorganized firms are consistent with managerial conservatism ex ante, and help alleviate creditor concern with costly asset substitution designed to delay filing in an automatic bankruptcy auction system.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/pubs/dps/DP3481.asp
File Format: application/pdf
File Function:
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3481.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Jul 2002
Date of revision:
Handle: RePEc:cpr:ceprdp:3481

Contact details of provider:
Postal: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: bankruptcy; CEO turnover; executive compensation; post-bankruptcy performance; private benefits of control; risk-shifting incentives;

Other versions of this item:

Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Oliver Hart, 2000. "Different Approaches to Bankruptcy," Harvard Institute of Economic Research Working Papers 1903, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  2. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February. [Downloadable!] (restricted)
  3. Espen Eckbo, B. & Verma, Savita, 1994. "Managerial shareownership, voting power, and cash dividend policy," Journal of Corporate Finance, Elsevier, vol. 1(1), pages 33-62, March. [Downloadable!] (restricted)
  4. Brander, J.A. & Poitevin, M., 1988. "Managerial Compensation And The Agency Costs Of Debt Finance," Cahiers de recherche 8827, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    Other versions:
  5. Holmstrom, Bengt & Ricart i Costa, Joan, 1986. "Managerial Incentives and Capital Management," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 835-60, November. [Downloadable!] (restricted)
  6. Per Strömberg, 2000. "Conflicts of Interest and Market Illiquidity in Bankruptcy Auctions: Theory and Tests," Journal of Finance, American Finance Association, vol. 55(6), pages 2641-2692, December. [Downloadable!] (restricted)
    Other versions:
  7. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April. [Downloadable!] (restricted)
  8. Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June. [Downloadable!] (restricted)
    Other versions:
  9. Aghion, P. & Hart, O. & Moore, J., 1992. "The Economics of Bankruptcy Reform," Working papers 92-11, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  10. Gregor Andrade & Steven N. Kaplan, 1998. "How Costly is Financial (Not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed," Journal of Finance, American Finance Association, vol. 53(5), pages 1443-1493, October. [Downloadable!] (restricted)
    Other versions:
  11. Hirshleifer, David & Thakor, Anjan V, 1992. "Managerial Conservatism, Project Choice, and Debt," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 5(3), pages 437-70. [Downloadable!] (restricted)
  12. Vojislav Maksimovic & Gordon Phillips, 1998. "Asset Efficiency and Reallocation Decisions of Bankrupt Firms," Journal of Finance, American Finance Association, vol. 53(5), pages 1495-1532, October. [Downloadable!] (restricted)
  13. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  14. Mikkelson, Wayne H. & Partch, M. Megan, 1997. "The decline of takeovers and disciplinary managerial turnover," Journal of Financial Economics, Elsevier, vol. 44(2), pages 205-228, May. [Downloadable!] (restricted)
  15. Warner, Jerold B. & Watts, Ross L. & Wruck, Karen H., 1988. "Stock prices and top management changes," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 461-492, January. [Downloadable!] (restricted)
  16. Weisbach, Michael S., 1988. "Outside directors and CEO turnover," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 431-460, January. [Downloadable!] (restricted)
  17. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  18. Robert Comment & G. William Schwert, 1995. "Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Antitakeover Measures," NBER Working Papers 4316, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  19. Ofek, Eli, 1993. "Capital structure and firm response to poor performance: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 34(1), pages 3-30, August. [Downloadable!] (restricted)
  20. Morck, Randall & Shleifer, Andrei & Vishny, Robert W, 1989. "Alternative Mechanisms for Corporate Control," American Economic Review, American Economic Association, vol. 79(4), pages 842-52, September. [Downloadable!] (restricted)
    Other versions:
  21. Goyal, Vidhan K. & Park, Chul W., 2002. "Board leadership structure and CEO turnover," Journal of Corporate Finance, Elsevier, vol. 8(1), pages 49-66, January. [Downloadable!] (restricted)
  22. John, Kose & Ofek, Eli, 1995. "Asset sales and increase in focus," Journal of Financial Economics, Elsevier, vol. 37(1), pages 105-126, January. [Downloadable!] (restricted)
  23. Zingales, Luigi, 1994. "The Value of the Voting Right: A Study of the Milan Stock Exchange Experience," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(1), pages 125-48. [Downloadable!] (restricted)
  24. Robert Gibbons & Kevin J. Murphy, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  25. Eckbo, B Espen & Thorburn, Karin S, 2002. "Overbidding versus Fire-Sales in Bankruptcy Auctions," CEPR Discussion Papers 3240, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  26. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-64, April. [Downloadable!] (restricted)
    Other versions:
  27. John, Kose & Lang, Larry H P & Netter, Jeffry, 1992. " The Voluntary Restructuring of Large Firms in Response to Performance Decline," Journal of Finance, American Finance Association, vol. 47(3), pages 891-917, July. [Downloadable!] (restricted)
  28. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gary Cook & Keith Pond, 2006. "Explaining the choice between alternative insolvency regimes for troubled companies in the UK and Sweden," European Journal of Law and Economics, Springer, vol. 22(1), pages 21-47, July. [Downloadable!] (restricted)
  2. Alan Schwartz, . "A Normative Theory of Business Bankruptcy," American Law & Economics Association Annual Meetings 1037, American Law & Economics Association. [Downloadable!]
  3. Franken, S., 2003. "The debtor-oriented model versus the creditor-oriented model of corporate bankruptcy law : a US-Dutch comparison," Discussion Paper 14, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  4. Eckbo, B. Espen & Thorburn, Karin S., 2004. "Bidding in mandatory bankruptcy auctions: Theory and evidence," Discussion Papers 2004/16, Department of Finance and Management Science, Norwegian School of Economics and Business Administration. [Downloadable!]
    Other versions:
  5. Acharya, Viral V & Amihud, Yakov & Litov, Lubomir P., 2008. "Creditor Rights and Corporate Risk-taking," CEPR Discussion Papers 6697, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Statistics
Access and download statistics

Did you know? IDEAS was sponsored from 1997 to 2002 by the Université du Québec à Montréal.

This page was last updated on 2009-11-25.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.