The Relationship Between Board Composition and Leadership Structure and Bankruptcy Reorganization Outcomes

Abstract

With the dramatic rise in the number of corporate bankruptcies since the Bankruptcy Reform Act of 1978, it is increasingly important to understand those factors which are associated with a Chapter 11 reorganization filing. Of particular interest is the association between firms’ strategic leadership and successfully emerging from a bankruptcy reorganization. This study examines the association between bankrupt firms’ board composition and board leadership structure and four outcomes of the bankruptcy reorganization process. While controlling for firm size, financial indicators, outside ownership interests, and CEO tenure, stepwise multiple discriminant function analysis indicates predictive power for board composition, but not board leadership structure.