CEO AND DIRECTOR TURNOVER IN FAILING FIRMS - AN ILLUSION OF CHANGE

Firms facing imminent bankruptcy would seemingly be under some pressure to demonstrate effective governance structures as a means for maintaining the support of important external constituents and initiating a turnaround. Little is known, however, about CEO and director turnover and its impact on the composition and structure of the board in failing firms. This study assesses both the incidence and form of governance changes in the 5-year period prior to corporate bankruptcy. Despite extensive board member and CEO replacements, changes by firms at imminent risk of failure do not conform with the prescriptions favored by reform advocates and institutional investors.