Mardi | 2009-05-12

Xavier BREDARD – libre

The aim of this paper is to analyse the effectiveness of corporate governance mechanisms onthe performance and the indebtedness of firms that have been bankrupted.Our sample is made of 81 U.S. firms that have filled for chapters 7 or 11 of the bankruptcyprotection law after the burst of the financial speculative bubble in mid-2007 for which wecollected characteristics for year 2006. In order to obtain a broader view of the researchproblem, we decided to lead a multivariate analysis linking corporate governancemechanisms (approached by variables regarding CEO characteristics and board structure)with two performance indicators and, in an exploratory phase, with liquidity and solvabilityratios. The results of our four regression models including control variables (activity fieldand size) show that firms from the banking sector are more exposed to potential problems onboth performance and indebtedness points of view. Regarding the performance ratios, wenotice that CEO tenure and the duality of the two CEO and chairperson functions reflect apositive entrenchment while the proportion of shares held by the CEO and its ageing arenegatively linked to performance ratios. The exploratory phase relative to indebtednessindicates that liquidity is positively linked to board activity and CEO compensation while anaccrued number of independent directors in the board appears to be an efficient way tomanage solvability. Last, the existence of a compensation committee seems to be aninadequate corporate control mechanism regarding solvability matters.Consequently, our results show that, while indebtedness is mainly driven by the structure ofthe board of directors, performance is determined by CEO characteristics.