Title: Executive compensation and corporate bankruptcy in the context of crisis

Authors: Sarra Elleuch Hamza; Imen Lourimi

Addresses: LIGUE Laboratory, ISCAE, Campus University, 2010, Manouba, Tunisia ' ISCAE, Campus University, 2010, Manouba, Tunisia

Abstract: This paper investigates the relationship between executive compensation and bankruptcy in the context of crisis. Selecting a sample of the 105 largest bankrupt US companies and the 105 largest solvent US companies for the periods 2000 to 2002 and 2007 to 2009, and using multivariate logit regressions, our results reveal a negative and significant relationship between CEO compensation and corporate bankruptcy two years prior to the occurrence of this event. In addition, the results show that the compensation levels received by CEOs in failed companies are not significantly different from those paid to its counterparts in healthy companies for a three-year period prior to the bankruptcy. This study suggests that, unlike many previous studies, CEO compensation is reduced when the firm is near bankruptcy. It supports the recent trend of a decrease in managerial power and the active role of creditors in fixing CEO remuneration.

Keywords: corporate bankruptcy; executive compensation; multivariate logit regression; company failure; managerial power; creditors; CEO remuneration.

DOI: 10.1504/IJBGE.2014.062772

International Journal of Business Governance and Ethics, 2014 Vol.9 No.1, pp.68 - 90

Received: 23 Aug 2013
Accepted: 19 Mar 2014
Published online: 31 Mar 2015 *

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