It’s not so bad: Director bankruptcy experience and corporate risk-taking

Radhakrishnan Gopalan, Todd A. Gormley and Ankit Kalda

Journal of Financial Economics, 2021, vol. 142, issue 1, 261-292

Abstract: We show that firms take more (but not necessarily excessive) risks when one of their directors experiences a corporate bankruptcy at another firm where they concurrently serve as a director. This increase in risk-taking is concentrated among firms where the director experiences a shorter, less-costly bankruptcy and where the affected director likely exerts greater influence and serves in an advisory role. The findings show that individual directors, not just CEOs, can influence a wide range of corporate outcomes. The findings also suggest that individuals actively learn from their experiences and that directors tend to lower their estimate of distress costs after participating in a bankruptcy firsthand.

Keywords: Directors; Bankruptcy; Risk; Experience; Beliefs (search for similar items in EconPapers)
JEL-codes: D84 G32 G33 G34 G41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:142:y:2021:i:1:p:261-292

DOI: 10.1016/j.jfineco.2021.04.037

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