Financial distress, corporate control, and management turnover: A German panel analysis


According to corporate financial theory, the states of financial distress, default, and bankruptcy present a fundamental stage in the life-cycle of corporations that provokes substantial changes in the ownership of firms’ residual claims and the allocation of rights to manage corporate resources [e.g. (1988), (1990)]. However, empirical results on how precisely these changes evolve have remained sparse and inconclusive.1 For example, neoclassical models on financial distress typically suggest that default engenders a wholesale transfer of control to the firm’s lenders who can costlessly restructure their claims to maximize firm value [e.g. (1978)]. Yet, the actual role of creditors in the restructuring of financially distressed firms has not been exhaustively scrutinized. Similarly, while financial theory traditionally proposes that managers personally suffer when their firms default or go bankrupt [e.g. (1977)], there exists little evidence on what forces actually discipline managers in financially distressed firms


Corporate Governance Private Investor Financial Distress Supervisory Board Ownership Concentration 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Bibliography for Chapter 3

  1. Asquith, P., R. Gertner, and D. Soharfstein (1994): “Anatomy of Financial Distress: An Examination of Junk-Bond Issuers,” The Quarterly Journal of Economics, 109, 625–658.CrossRefGoogle Scholar
  2. Baker, G. P., M. C. Jensen, and K. J. Murphy (1988): “Compensation and Incentives: Practice Vs. Theory,” The Journal of Finance, 43, 593–616.CrossRefGoogle Scholar
  3. Barclay, M. J., and C. G. Holderness (1989): “Private Benefits from Control of Public Corporations,” Journal of Financial Economics, 25, 371–395.CrossRefGoogle Scholar
  4. -, (1991): “Negotiated Block Trades and Corporate Control,” The Journal of Finance, 46, 861–878.CrossRefGoogle Scholar
  5. Bebohuk, L. A. (1999): “A Rent-Protection Theory of Corporate Ownership and Control,” NBER Working Paper No. 7203.Google Scholar
  6. Becker, W. (2003): “Geier oder Notärzte? US-Investoren wittern in deutschen Turnaround-Kandidaten hohe Renditen,” Börsen-Zeitung, (158 [08.19.03]), 13.Google Scholar
  7. Bhagat, S., and R. H. J. Jefries (2002): The Econometrics of Corporate Governance Studies. MIT Press, Cambridge, MA.Google Scholar
  8. Brüchner, T. (1998): Reorganisationstrategien für insolvenzbedrohte Unternehmen. Peter Lang, Frankfurt a.M.Google Scholar
  9. Buth, A., M. Hermanns, and R. Janus (1998): “Finanzwirtschaftliche Aspekte der Fortführung von Krisenunternehmen,” in Restrukturierung, Sanierung, Insolvenz, ed. by A. Buth, and M. Hermanns, pp. 224–245, München. Beck.Google Scholar
  10. Conaway, M. R. (1990): “A Random Effects Model for Binary Data,” Biometrics, 46, 317–328.CrossRefGoogle Scholar
  11. Demsetz, H., and K. Lehn (1985): “The Structure of Corporate Ownership: Causes and Consequences,” Journal of Political Economy, 93, 1155–1177.CrossRefGoogle Scholar
  12. Denis, D. J., D. K. Denis, and A. Sarin (1997): “Ownership Structure and Top Executive Turnover,” Journal of Financial Economics, 45, 193–221.CrossRefGoogle Scholar
  13. Denis, D. J., and A. Sarin (1999): “Ownership and Board Structures in Publicly Traded Corporations,” Journal of Financial Economics, 52, 187–223.CrossRefGoogle Scholar
  14. Edwards, J., and K. Fischer (1994): Banks, Finance and Investment in West-Germany Since 1970. Cambridge University Press, Cambridge, U.K.Google Scholar
  15. Ehrhardt, O., and E. Nowak (2003): “Private Kontrollrenten in Deutschen Familienunternehmen,” Die Betriebswirtschaft, 63, 363–377.Google Scholar
  16. Fama, E. F., and M. C. Jensen (1983): “Separation of Ownership and Control,” Journal of Law and Economics, 26, 301–325.CrossRefGoogle Scholar
  17. Finsterer, H. (1999): Unternehmenssanierung Durch Kreditinstitute: Eine Untersuchung unter Beachtung der Insolvenzordnung. Gabler, Wiesbaden.Google Scholar
  18. Franks, J., and C. Mayer (2001): “Ownership and Control of German Corporations,” The Review of Financial Studies, 14, 943–977.CrossRefGoogle Scholar
  19. Franks, J. R., C. Mayer, and L. Renneboog (2001): “Who Disciplines Management in Poorly Performing Companies?,” Journal of Financial Intermediation, 10, 209–248.CrossRefGoogle Scholar
  20. Franks, J. R., K. Nyborg, and W. Torous (1996): “A Comparison of US, UK, and German Insolvency Codes,” Financial Management, 25, 19–30.CrossRefGoogle Scholar
  21. Franks, J. R., and W. N. Torous (1989): “An Empirical Investigation of U.S. Firms in Reorganization,” The Journal of Finance, 44, 747–769.CrossRefGoogle Scholar
  22. Furtado, E., and M. Rozeff (1987): “The Wealth Effects of Company Initiated Management Changes,” Journal of Financial Economics, 18, 147–160.CrossRefGoogle Scholar
  23. Gertner, R., and D. Soharfstein (1991): “A Theory of Workouts and the Effects of Reorganization Law,” The Journal of Finance, 46, 1189–1222.CrossRefGoogle Scholar
  24. Gibbons, R. S., and K. J. Murphy (1990): “Relative Performance Evaluation for Chief Executive Officers,” Industrial and Labor Relations Review, 43, 30–51.CrossRefGoogle Scholar
  25. Gilson, S. C. (1989): “Management Turnover and Financial Distress,” Journal of Financial Economics, 25, 241–262.CrossRefGoogle Scholar
  26. -(1990): “Bankruptcy, Boards, Banks, and Blockholders,” Journal of Financial Economics, 27, 355–387.CrossRefGoogle Scholar
  27. Gilson, S. C., K. John, and L. H. Lang (1990): “Troubled Debt Restructurings, An Empirical Study of Private Reorganization of Firms in Default,” Journal of Financial Economics, 27, 315–353.CrossRefGoogle Scholar
  28. Gilson, S. C., and M. R. Vetsuypens (1993): “CEO Compensation in Financially Distressed Firms: An Empirical Analysis,” The Journal of Finance, 48, 425–458.CrossRefGoogle Scholar
  29. Gorton, G., and F. A. Schmid (2000): “Universal Banking and Performance of German Firms,” Journal of Financial Economics, 58, 29–80.CrossRefGoogle Scholar
  30. Gray, P. H. (1998): “A Comment on Wenger and Kaserer,” in Competition and Convergence in Financial Markets, ed. by S. W. Black, and M. Moersch, pp. 79–84, North-Holland. Elsevier.Google Scholar
  31. Greene, W. H. (2003): Econometric Analysis. Prentice Hall, Upper Saddle River, 5th edn.Google Scholar
  32. Grossman, S. J., and O. D. Hart (1988): “One Share–One Vote and the Market for Corporate Control,” Journal of Financial Economics, 20, 175–202.CrossRefGoogle Scholar
  33. Haugen, R., and L. Senbet (1978): “The Insignificance of Bankruptcy Costs to the Theory of Optimal Capital Structure,” The Journal of Finance, 33, 383–393.CrossRefGoogle Scholar
  34. Hausman, J. A. (1978): “Specification Tests in Econometrics,” Econometnca, 46, 1251–1271.CrossRefGoogle Scholar
  35. Hotohkiss, E. S., and R. M. Mooradian (1997): “Vulture Investors and the Market for Corporate Control of Distressed Firms,” Journal of Financial Economics, 43, 401–432.CrossRefGoogle Scholar
  36. Jenksinon, T., and A. Ljungqvist (2001): “Hostile Stakes and the Role of Banks in German Corporate Governance,” Journal of Corporate Finance, 7, 397–446.CrossRefGoogle Scholar
  37. Jensen, M. C. (1988): “Takeovers: Their Causes and Consequences,” Economic Perspectives, 2, 21–48.Google Scholar
  38. -(1989): “Active Investors, LBO’s and Privatization of Bankruptcy,” Journal of Applied Corporate Finance, 2, 35–44.CrossRefGoogle Scholar
  39. Jensen, M. C., and W. Meokling (1976): “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” Journal of Financial Economics, 3, 305–360.CrossRefGoogle Scholar
  40. Jensen, M. C., and R. S. Rubaok (1983): “The Market for Corporate Control: The Scientific Evidence,” Journal of Financial Economics, 11, 5–50.CrossRefGoogle Scholar
  41. John, K., and L. W. Senbet (1998): “Corporate Governance and Board Effectiveness,” Journal of Banking and Finance, 22, 371–403.CrossRefGoogle Scholar
  42. Jostarndt, P., B. Rudolph, and M. Thierauf (2005): “Unternehmenskontrolle und Management-Disziplinierung in Deutschland: Neue Ergebnisse,” in Handbuch Mergers and Acquisitions Management, ed. by B. Wirtz, pp. 203–228, Wiesbaden. Gabler.Google Scholar
  43. Köke, J. (2001): “New Evidence on Ownership Structures in Germany,” Kredit und Kapital, 14, 257–292.Google Scholar
  44. -(2002): Corporate Governance in Germany: An Empirical Investigation. Physica, Heidelberg.Google Scholar
  45. Maddala, G. S. (1987): “Limited Dependent Variable Models Using Panel Data,” The Journal of Human Resources, 22, 307–338.CrossRefGoogle Scholar
  46. Manne, H. G. (1965): “Mergers and the Market for Corporate Control,” The Journal of Political Economy, 73, 110–120.CrossRefGoogle Scholar
  47. McConnell, J. J., and H. Servaes (1990): “Additional Evidence on Equity Ownership and Corporate Value,” Journal of Financial Economics, 27, 595–612.CrossRefGoogle Scholar
  48. Mikkelson, W. H., and M. M. Partoh (1997): “The Decline of Takeovers and Disciplinary Managerial Turnover,” Journal of Financial Economics, 44, 205–228.CrossRefGoogle Scholar
  49. Ofek, E. (1993): “Capital Structure and Firm Response to Poor Performance,” Journal of Financial Economics, 34, 3–30.CrossRefGoogle Scholar
  50. Powers, E. A. (2005): “Interpreting Logit Regressions with Interaction Terms: An Application to the Management Turnover Literature,” Journal of Corporate Finance, 11, 504–522.CrossRefGoogle Scholar
  51. Ross, S. (1977): “The Determinants of Financial Structure: The Incentive-Signalling Approach,” Bell Journal of Economics, 8, 23–40.CrossRefGoogle Scholar
  52. Rudolph, B. (2003): “Unternehmensfinanzierung und Corporate Governance-Entwicklungen und weiterer Anpassungsbedarf,” Betriebs-Berater, 58, 2053–2060.Google Scholar
  53. Soharfstein, D. S. (1988): “The Disciplinary Role of Takeovers,” Review of Economic Studies, 55, 185–200.CrossRefGoogle Scholar
  54. Sohrader, S., and C. Lüthje (1995): “Das Ausscheiden der Spitzenführungskraft aus dem Unternehmen,” Zeitschrift für Betriebswirtschaftslehre, 65, 468–492.Google Scholar
  55. Senbet, L. W., and J. K. Seward (1995): “Financial Distress, Bankruptcy and Reorganization,” in Finance, ed. by R. A. Jarrow, V. Maksimovic, and W. T. Ziemba, pp. 921–957, Amsterdam, N.H. Elsevier.CrossRefGoogle Scholar
  56. Shleifer, A., and R. W. Vishny (1986): “Large Shareholders and Corporate Control,” Journal of Political Economy, 94, 461–488.CrossRefGoogle Scholar
  57. -(1989): “Management Entrenchment: The Case of Manager-Specific Investments,” Journal of Financial Economics, 25, 123–139.CrossRefGoogle Scholar
  58. -(1992): “Liquidation Values and Debt Capacity: A Market Equilibrium Approach,” The Journal of Finance, 47, 1343–1366.CrossRefGoogle Scholar
  59. -(1997): “A Survey of Corporate Governance,” The Journal of Finance, 52, 737–783.CrossRefGoogle Scholar
  60. Smith, C. W., and R. M. Stulz (1985): “The Determinants of Firms’ Hedging Policies,” The Journal of Financial and Quantitative Analysis, 20, 391–405.CrossRefGoogle Scholar
  61. Te Wildt, C. (1996): CEO Turnover and Corporate Performance. Wissenschaftsverlag Vauk, Kiel.Google Scholar
  62. Verbeek, M., and T. Nijman (1992): “Testing for Selectivity Bias in Panel Data Models,” International Economic Review, 33, 681–703.CrossRefGoogle Scholar
  63. Von Thadden, E.-L. (1990): “On the Efficiency of the Market for Corporate Control,” Kyklos, 43, 635–658.CrossRefGoogle Scholar
  64. Warner, J. B., R. L. Watts, and K. H. Wruck (1988): “Stock Prices and Top Management Changes,” Journal of Financial Economics, 20, 461–492.CrossRefGoogle Scholar
  65. Weisbaoh, M. S. (1988): “Outside Directors and CEO Turnover,” Journal of Financial Economics, 20, 431–460.CrossRefGoogle Scholar
  66. Wenger, E., and C. Kaserer (1998): “The German System of Corporate Governance: A Model Which Should Not Be Imitated,” in Competition and Convergence in Financial Markets, ed. by S. W. Black, and M. Moersch, pp. 41–78, Amsterdam. Elsevier.Google Scholar
  67. Werder, A. V. (2002): “Der Deutsche Corporate Governance Kodex: Grundlagen und Einzelbestimmungen,” Der Betrieb, 55, 801–810.Google Scholar
  68. Williamson, O. E. (1988): “Corporate Finance and Corporate Governance,” The Journal of Finance, 43, 567–592.CrossRefGoogle Scholar
  69. Wooldridge, J. M. (2002): Econometric Analysis of Cross-Section and Panel Data. MIT Press, Cambridge, MA.Google Scholar
  70. Wruck, K. H. (1990): “Financial Distress, Reorganization, and Organizational Efficiency,” Journal of Financial Economics, 27, 419–444.CrossRefGoogle Scholar

Copyright information

© Deutscher Universitäts-Verlag | GWV Fachverlage GmbH, Wiesbaden 2007

Personalised recommendations