dc.description.abstract | This thesis investigates the effects on company performance of employing a CEO with
bankruptcy experience. Bankruptcy experience refers to that the incumbent CEO has previously
filed for bankruptcy as CEO in another company. We have limited the treatment group to yield
the first subsequent CEO positions after the former bankruptcy. Thus, our treatment group
consists of 486 Norwegian private Limited Companies. The observation period is from 1998 to
2014. The treatment group is throughout the thesis compared to a control group with the same
distribution by sector, year, pre-treatment revenues and profitability. By applying a four-step
empirical strategy we analyze differences between the treatment- and control group with
regards to credit rating, changes in profitability, drivers of company performance, and
bankruptcy probability.
We find that CEOs with bankruptcy experience are employed in companies with significantly
lower credit rating than what applies for the control group. Further, the profitability increases
after hiring CEOs with bankruptcy experience, though from a lower level than in the control
group. The ROA is on average negative in the treatment group for all three years following the
CEO start. However, bankruptcy experience has no proven effect on the poor profitability. We
have developed a bankruptcy prediction model, which yields significantly higher bankruptcy
probability when adjusting for a CEO with bankruptcy experience. This suggests that
employing a CEO with bankruptcy experience will increase the risk of filing for bankruptcy.
By applying this improvement, investors and corporate banks will be able to better predict the
bankruptcy risk for companies. The reason for the inferior performance and increased
bankruptcy risk seems to lie in the selection of companies hiring such CEOs, rather than lack
of skills in the treatment group.
This thesis supports existing literature with regards to effects from CEO turnover, CEO impact
on corporate performance and potential effects from bankruptcy. Our findings contribute to the
understanding of the interaction between Norwegian private companies, bankruptcy prediction
and the CEO’s previous bankruptcy experience. | nb_NO |