A new bankruptcy study by two university professors found that incentive bonus plans for managers of bankrupt companies "significantly improve" outcomes for creditors, the Wall Street Journal's Bankruptcy Beat Blog reported on Friday. "Firms that adopt these plans—especially the incentive plans—are more likely to emerge, have shorter duration in restructuring and are less likely to violate the absolute priority rule under bankruptcy law," said Wei Wang, an assistant professor of business at Queen’s University. The study titled "Provision of Management Incentives in Bankrupt Firms" looked at 417 large public companies that filed for chapter 11 between 1996 and 2007. Of those, about 39 percent offered retention and incentive plans to key employees and the researchers looked at what effect, if any, those plans had on the outcomes of the bankruptcy cases. Wang, who co-authored the study with Vidhan K. Goyal, a finance professor at the Hong Kong University of Science and Technology, also said that the research does not support the common view among many bankruptcy observers that bonus plans enrich managers at the expense of creditors. On the contrary, creditor control—for example, when a hedge fund or lender is directing the bankruptcy case—increases the likelihood that bankrupt firms offer retention and incentive bonuses to managers, he said. Wang added that while it is true that retention plans did not have any impact on chapter 11 cases, companies that adopted incentive bonuses spent less time in bankruptcy and were in better shape when they emerged. To read the study, please click here: https://www.documentcloud.org/documents/408293-kerpaugust8.html
