Creditor Control in Financially Distressed Firms: Empirical Evidence

In this Article we present the results of empirical research that examines how creditor control is manifested in financially troubled firms that have to renegotiate their debt contracts

Management Buyouts of Divisions and Shareholder Wealth.

This paper examines the wealth effects to parent company shareholders around the announcement of divisional management buyouts. Despite the relative absence of "arms-length" bargaining between buyer and seller, there is no evidence that divisional management buyouts result in reductions in parent company share prices. Instead, small, but statistically significant, wealth gains are found during the two-day period surrounding the buyout announcement. This evidence suggests that divisional buyouts reallocate ownership of corporate assets to higher-valued uses and that parent company stockholders share in the expected benefits of this change in ownership structure. Copyright 1989 by American Finance Association.

CEO Compensation in Financially Distressed Firms: An Empirical Analysis.

This paper studies senior management compensation policy in seventy-seven publicly traded firms that filed for bankruptcy or privately restructured their debt during 1981 to 1987. Almost one-third of all CEOs are replaced, and those who keep their jobs often experience large salary and bonus reductions. Newly appointed CEOs with ties to previous management are typically paid 35 percent less than the CEOs they replace. In contrast, outside replacement CEOs are typically paid 36 percent more than their predecessors, and are often compensated with stock options. On average, CEO wealth is significantly related to shareholder wealth after firms renegotiate their debt contracts. However, managers' compensation is sometimes explicitly tied to the value of creditors' claims. Copyright 1993 by American Finance Association.