Corporate Bankruptcy and Job Losses among Top Level Managers

firm. The importance of this issue is reflected in the agency cost [2], incentive signaling [5], and capital budgeting [1] literature. The question is obviously an empirical one. Lewellen [3], among others, has shown us that when firms succeed, manager and shareholder welfare may well coincide. There are no data, however, on whether this is also true when firms fail. The costs of bankruptcy to the suppliers of debt and equity have been studied by Warner [6]. There have been few hard facts, though, on the costs of bankruptcy to managers. While certain costs, such as income losses and losses due to unfunded or restructured pensions, are difficult to measure, other losses affecting managers are more easily determined. These are actual loss of the manager's job and of his outside directorships which contribute to the esteem he enjoys in the business community. We are not able here to present the dollar losses to managers due to bankruptcy. We have, however, assembled some data that would give indications of job losses among top level managers after bankruptcy. What happens to the managers of companies that have undergone bankruptcy proceedings? Do they lose their jobs? If so, how quickly? Do they lose their outside directorships? Are there differences in the experiences of executives in successfully reorganized firms and those in liquidated ones? These are the questions on which this study attempts to add some insight.