Top Managerial Prestige and Organizational Bankruptcy

Richard A. D'Aveni
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Richard A. D'Aveni: Amos Tuck School of Business Administration, Dartmouth College, Hanover, New Hampshire 03755

Organization Science, 1990, vol. 1, issue 2, 121-142

Abstract: This paper extends earlier work on an alternative view of bankruptcy suggesting that bankruptcy occurs when creditors withdraw then support from a firm's top management team. It further proposes that support for the top team depends upon the team's prestige. Five characteristics measuring the relative status of top teams were tested for their association with bankruptcy. Three of the characteristics focused on items commonly associated with membership in economic elites elite educational backgrounds, board memberships, and previous employment as officers in other corporations. The fourth and fifth characteristics focused on membership in political and military elites. The results indicated that political and board connections were negatively associated with bankruptcy in the year of failure, even when financial factors and cooptive board linkages were controlled. The results also showed that failing firms attempted to improve their managerial prestige three to four years before they failed. They were, however, unable to hold onto their gains because of the “bailout” by prestigious managers in the last two years before bankruptcy.

Keywords: bankruptcy; decline; top management teams; executive succession; interlocking directorates (search for similar items in EconPapers)
Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:1:y:1990:i:2:p:121-142

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