Title: Financial distress and corporate governance: the impact of the CEO

Authors: Xavier Brédart

Addresses: University of Mons, Place Warocqué 17, 7000 Mons, Belgium

Abstract: The number of filings for liquidation and reorganisation procedures has exploded since 2007 and governance has been pointed out as one of the causes. We took a unique dataset of 312 US firms and asked the following research question: does chief executive officer (CEO) entrenchment have an impact on financial distress? We used a matched-pair sample of US quoted firms with half of the sample filing for Chapter 7 (liquidation) or 11 (reorganisation) of the United States Bankruptcy Code and conducted logit regression analysis. We found that some CEO characteristics linked to entrenchment were significantly different for firms that opted for legal protection from those that did not. Specially, defaulted firms had CEOs that had more tenure and less ownership. This study uses entrenchment perspective to examine CEO configuration and its influence on a company's decision to resort to a bankruptcy protection law. Findings show that CEO entrenchment influences the filing for a liquidation or reorganisation procedure. By demonstrating that corporate governance matters in terms of financial distress, this study offers guidance to shareholders and financial institutions.

Keywords: corporate governance; financial distress; CEO entrenchment; CEO tenure; CEO ownership; CEO age; CEO-chairman duality; Chief Executive Officers; legal protection; bankruptcy protection law; liquidation; reorganisation.

DOI: 10.1504/IJBGE.2013.059159

International Journal of Business Governance and Ethics, 2013 Vol.8 No.4, pp.289 - 305

Received: 22 Feb 2013
Accepted: 11 Sep 2013

Published online: 05 Feb 2014 *

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