CEO retention may be good for post-bankruptcy performance

Bankrupt firms may find that keeping their CEO is better for business. That’s the message University of Pittsburgh accounting Professor Harry Evans will give at the upcoming Schulich Accounting Seminar Series.

Evans, the Katz Alumni Professor of Accounting, will present “Bankruptcy, CEO Retention and the Evolution of Contractual Practices,” on Friday, Dec. 12, from 11:30am to 1pm in Room W356, Seymour Schulich Building, Keele campus.

His talk will analyze the causes and consequences of CEO retention in bankrupt firms. “Over our sample period of 1991 to 2003, CEO retention by bankrupt firms is associated with better post-bankruptcy firm performance,” says Evans, associate editor of Management Science, Journal of Accounting Literature.

"This paper, re-examining the impact of CEO retention in bankrupt firms, has also provided very important implications for corporate governance and management especially under current economic turmoil," says York accounting Professor Sylvia H. Hsu says.

Left: Harry Evans

It is a follow up to Edith Shwalb Hotchkiss‘ study "Postbankruptcy Performance and Management Turnover," which looked at CEO retention from 1979 to 1988. Hotchkiss found that CEO retention was associated with significantly worse post-bankruptcy firm performance – the opposite of Evans’ findings. But Evans says there is a reason for the difference.

“We attribute this reversal in the effect of CEO retention on bankrupt firm performance to changes in the bankruptcy environment from the 1980s to the 1990s,” he says. “In particular, the evolution of contractual practices, including debtor-in-possession financing, prepackaged bankruptcy and targeted CEO financial incentives, effectively shifted control of the bankrupt firms from managers to creditors.”

This new environment in the 1990s enabled bankrupt firms to retain more talented CEOs and to provide these CEOs with more effective incentives to maximize value for creditor and equity holders.

The Schulich Accounting Seminar Series, which runs throughout the year, is a series of presentations for people interested in accounting research. Accounting research scholars are invited to present the most current research and discuss innovative research ideas, which enhances research competence of the Schulich accounting area, says Hsu.

For more information, contact Professor Sylvia H. Hsu at