Provision of Management Incentives in Bankrupt Firms By Vidhan K. Goyaly, and Wei Wang

1. Provision of Management Incentives in Bankrupt FirmsBy Vidhan K. Goyaly, and Wei Wang Discussant: Jiang Cheng Shanghai Jiao Tong University 2012 NTUICF Meeting, Taipei

2. Findings • Creditor control of bankruptcies increases the likelihood that bankrupt firms offer retention and incentive bonuses to managers. • Key employee retention plans (KERPs) improve bankruptcy outcomes for creditors along several dimensions: higher likelihood of emergence, reduced bankruptcy duration, fewer violations of the absolute priority rule.

3. Comments • IVs for the adoption of KERPs on page 24: Employment options for employees. • The propensity of employees to switch firms depends on the ease with which they can find alternative employment. page17 • Two proxies measured by a geographic concentration of same-industry firms ThickEmplMarkets and the median industry cash compensation growth IndCompGrowth) • Reasonable proxy for lower level managers, not perfect for the highest-tier group managers. • Proxy for top managers’ quality/employment options. Firms go bankruptcy mainly because of top managers, not low lever managers. They are not superior managers. They are truly entrenched managers, or just have bad luck? KERPs are adopted because creditors are ineffective in preventing (top) managers/CEOs from enriching themselves through the payment of these bonuses or creditors believe incumbent CEOs are those with bad luck only?

4. Comments • Sample period 1996-2007. Any difference between pre-2005 and post-2005 since the passage of BAPCPA? • Page 21: ThickEmplMarkets positively affect the plan sizes and plan costs for the payment of retention bonuses but not for incentive bonuses. On the contrary, IndCompGrowthpositively affect plan sizes and plan costs for incentive bonuses but not for incentive retention bonuses. Any explanation? • Typo: Wooldridge (2002) instead of Woolridge (2002) on page 25