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

Abstract

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

Keywords

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.

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