Managers of Financially Distressed Firms: Villains or Scapegoats?

Khanna, Naveen; Poulsen, Annette B.

doi:10.2307/2329293

Cited by 74 publications

(47 citation statements)

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“…We also examine whether the decisions made by fired CEOs differ significantly from decisions made by matched-sample CEOs. Khanna and Poulsen (1995) find that the decisions made by firms that file for Chapter 11 bankruptcy are not significantly different from the decisions made by a matched sample of firms that do not file Chapter 11. Their results suggest that the poor performance of the Chapter 11 firms is not due to poor decision making by the CEOs.…”

Section: Introductioncontrasting

confidence: 55%

“…Further, the results suggest that although matchedsample firms were in the same industry, of similar size, and performing similarly, forced-turnover sample firms were under greater scrutiny by the financial press. 18 Khanna and Poulsen (1995) find that the Chapter 11 firms that experience turnover announce more downsizing decisions. Weisbach (1995) investigates the incidence of divestitures following CEO turnover and, finds evidence of an increased likelihood of divestitures following CEO turnover.…”

Section: Analysis Of News Announcements Surrounding Forced Ceo Turnovermentioning

confidence: 97%

“…Similar to Khanna and Poulsen (1995), we identify the following manager decisions: changes in top management (which includes chairmen, presidents, chief financial officers and chief operating officers); plant closings, layoffs, asset sales or downsizing; acquisitions and expansions; lending arrangements and new debt; debt swaps; issuance of equity; and stock buybacks.…”

Section: Empirical Analysismentioning

confidence: 99%

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Monitoring by the financial press and forced CEO turnover

Farrell

Whidbee

2002

Journal of Banking & Finance

102

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This paper examines Wall Street Journal news stories about 79 firms that forced CEO turnover and a matched sample of firms that did not force CEO turnover. In the two years prior to turnover, firms in the forced-turnover sample were the subjects of 76% more news stories about poor firm performance despite being from the same industry, of similar size, and similar performance as a sample of matched firms. Overall, the evidence suggests that scrutiny of poor firm performance by the financial press increases the likelihood of forced CEO turnover.

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Section: Introductioncontrasting

confidence: 55%

Section: Analysis Of News Announcements Surrounding Forced Ceo Turnovermentioning

confidence: 97%

Section: Empirical Analysismentioning

confidence: 99%

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Monitoring by the financial press and forced CEO turnover

Farrell

Whidbee

2002

Journal of Banking & Finance

102

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“…To maintain the equilibrium effort level boards of directors fire managers to make the other managers exert the desired level of effort. Some evidence in favour of this theory is presented by Khanna and Poulson (1995) who compare management in firms that go into liquidation by filing for "Chapter 11" with management in firms doing fine over a period up to 3 years before the "Chapter 11" filing. Their estimates suggest that managers in both samples make similar decisions and that managers of financially distressed firms are not taking value-reducing actions to harm the firm or its shareholders.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Does Manager Turnover Improve Firm Performance? Evidence from Dutch Soccer, 1986–2004

Weel

2011

De Economist

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This research examines the impact of manager turnover on firm performance using information from the Dutch soccer league in the period 1986-2004. The main advantage of using sports data is that both manager characteristics and decisions and firm outcomes are directly observable. Both difference-in-difference and 2SLS estimates suggest no statistically significant improvements in performance after manager turnover, whereas previous research based on publicly traded firm data has found positive but very small effects of manager turnover on performance. The estimates confirm previous research using soccer data. In addition, estimates suggest that manager quality does not seem to matter in predicting turnover. These estimates are compared and contrasted with studies using publicly traded firm data and studies using soccer data.

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“…From the (Eisenhardt 1989;Sappington 1991), interpersonal ties may help prevent the emergence of problems such as opportunistic behavior, private benefit seeking, and others typically found in the relationship between the CEO and other TMT members (Cruz, Gomez-Mejia, and Becerra 2010;Hermalin and Weisbach 1998). Likewise, strong interpersonal ties may also limit possible scapegoating behavior prompted by the CEO, as sacrificing an affiliated executive is likely to be perceived as an acknowledgement of the duo's fault (Khanna and Poulsen 1995). Overall, strong interpersonal ties between the CEO and a TMT member indicate that an individual TMT member is part of the CEO's "inner circle", the coalition where the firm's most important strategic decisions are made (Hambrick and Mason 1984;Mooney and Amason 2011).…”

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confidence: 99%

Hanging Together, Together Hung? Career Implications of Interpersonal Ties Between CEOs and Top Managers

Hilger

Richter

Schäffer

2013

Bus Res

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Is it good or bad for senior executives to have strong interpersonal ties to the CEO? We argue that a strong relationship with the CEO raises the likelihood that a top manager stays in office or makes an upward career move when the CEO leaves office voluntarily. At the same time, such interpersonal ties also reinforce the negative spillover effects of a dismissal of the CEO on the career prospects of the manager concerned. Our empirical analysis lends support to both arguments. We contribute to managerial succession research by underlining the ambivalence of interpersonal ties within top management teams. JEL classification: D85, M51, G30Keywords: corporate governance, interpersonal ties, top executive careers, top executive turnover, top management teams Manuscript received February 6, 2012, accepted by Peter Walgenbach (Management) October 29, 2012. spects. Given the generally positive portrayal of interpersonal ties to the CEO in the literature so far (e.g., Cao, Maruping, and Takeuchi 2006;Collins and Clark 2003), we highlight a potential ambivalence in such ties, at least in critical situations such as the dismissal of the CEO. In our empirical study, we investigate the career implications of interpersonal ties to the CEO from the perspective of a senior manager in a functional role that exists in virtually every large company, namely the Chief Financial Officer (CFO). CFOs are in a particularly challenging position, in that they should maintain a balance between independence from the CEO for the sake of greater neutrality and objectivity (Daily and Schwenk 1996), and closeness to the CEO as the primary strategic partner (Arthaud-Day, Certo, Dalton, and Dalton 2006;Collins, Masli, Reitenga, and Sanchez 2009;Tulimieri and Banai 2010;Zorn 2004). Using a matched-pair design, we analyze data on 77 CFO-turnover events in large, stock-market-quoted companies in Germany between 1999 and 2006 to shed light on the ambivalence of strong interpersonal ties to the CEO. Using logistic regression techniques, we find support for our central expectations, namely that strong interpersonal ties to a CEO help to keep a top manager in office. At the same time, when the CEO leaves office, strong ties reinforce the effect of the CEO's departure on the likelihood that the TMT member will leave their position, too: If the CEO leaves for routine reasons, then a strong relationship with that CEO enhances the likelihood that the TMT member concerned will make an upward career move through internal promotion or a move to a better position elsewhere. However, if the CEO is dismissed, a strong relationship with that CEO increases the TMT member's risk of also being dismissed. Our findings add to managerial succession research (Cao, Maruping, and Takeuchi 2006;Fee and Hadlock 2004;Mian 2001;Shen and Cannella 2002a) by highlighting the ambivalence of strong interpersonal ties. 2Theory and Hypotheses 2.1The Importance of Relationships between TMT Members and the CEO According to social network perspectives, interpersonal ties am...

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Managers of Financially Distressed Firms: Villains or Scapegoats?

Cited by 74 publications

References 0 publications

Monitoring by the financial press and forced CEO turnover

Monitoring by the financial press and forced CEO turnover

Does Manager Turnover Improve Firm Performance? Evidence from Dutch Soccer, 1986–2004

Hanging Together, Together Hung? Career Implications of Interpersonal Ties Between CEOs and Top Managers

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