Faculty Publications

Corporate Governance Changes Around Bankruptcy

Document Type

Article

Keywords

Bankruptcy, Blockholders, Corporate governance, Ownership

Journal/Book/Conference Title

Managerial Finance

Volume

43

Issue

10

First Page

1152

Last Page

1169

Abstract

Purpose: Periods of financial distress represent an episode during the firm’s life that requires an effective governance structure in the interests of shareholders. Changes in corporate governance structure are examined as firms approach and emerge from Chapter 11 bankruptcy. The purpose of this paper is to posit that firms alter their governance toward a more effective framework during restructuring, leading to emergence as a better performing firm. Design/methodology/approach: The data set includes large firms that filed for bankruptcy between 1998 and 2013. Financial and governance characteristics prior to filing are compared to traits following emergence. The likelihood of emerging from bankruptcy is tested based on governance characteristics prior to filing and the change in these characteristics during bankruptcy. Findings: The results show that firms use the bankruptcy process to significantly change their governance characteristics. These changes include smaller boards, greater board independence, unitary boards, the separation of the CEO and chairman positions, and changes in the ownership structure. Despite these changes, performance following emergence does not improve, and the changes in governance structure do not alter the likelihood that the firm will emerge. Originality/value: This study, unlike previous studies, takes a broad look at governance characteristics for firms before and after bankruptcy. The findings imply that “better” governance, as defined in the literature, is not necessarily the pathway to better performance as many posit. The factors that influence the likelihood of emerging from bankruptcy and post-emergence performance require further study.

Department

Department of Finance

Original Publication Date

1-1-2017

DOI of published version

10.1108/MF-09-2015-0257

Repository

UNI ScholarWorks, Rod Library, University of Northern Iowa

Language

en

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