HCBE Faculty Articles

Title

Do Golden Parachutes Matter? Evidence from Firms that Ultimately Filed for Bankruptcy

Document Type

Article

Date

2018

Publication Title

The Quarterly Review of Economics and Finance

ISSN or ISBN

1062-9769

Volume

67

First Page

63

Last Page

78

Description

We study bankruptcy outcomes of 275 firms and find that hiring CEOs with golden parachutes (GPs) during financial distress is associated with a lower probability of liquidation. In contrast, firms led by incumbent CEOs with GPs are more likely to be liquidated, as are firms led by new CEOs without GPs. Since GPs are nullified during bankruptcy, the observed relationship cannot be attributed to an explicit incentive effect. Rather, we contend that during financial distress GPs help recruit reputable CEOs who, even without explicit incentives, continue to maximize shareholder value due to implicit reputational and career concerns.

DOI

10.1016/j.qref.2017.05.002

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