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Bankruptcy law penalties and board independence

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  • Canipek, Aras

Abstract

A large theoretical literature suggests that bankruptcy law penalties can reduce agency problems, yet evidence remains scarce. To provide evidence, I examine whether firms implement independent directors as a substitute when penalties are eliminated. For identification, I exploit that penalties are relevant only for risky firms. Across countries, board independence is negatively related to penalties, but only among risky firms. Comparing board independence of risky and safe firms around bankruptcy reforms in Germany, Italy, and the US confirms the results. Economically, risky firms increase the number of independent directors by 21% relative to safe firms following the elimination of penalties.

Suggested Citation

  • Canipek, Aras, 2026. "Bankruptcy law penalties and board independence," SAFE Working Paper Series 488, Leibniz Institute for Financial Research SAFE.
    • Handle: RePEc:zbw:safewp:343059
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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