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The authors study stock and option grants around abrupt performance declines for continuing CEOs and find that firms facing abrupt financial declines grant more options than stock, while firms facing operational decline grant more stock than options. Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover. The paper aims to discuss these issues.

To establish causality, the authors exploit compensation changes instigated by FAS 123R accounting regulation in 2005 that mandated stock option expensing.

Firms making these adjustments just prior to performance declines outperform those that do not for three years following the decline and are less likely to engage in asset restructuring. The result is robust to numerous tests, including rebalancing of incentives and CEO turnover.

Several studies examine the relationship between poor performance and compensation of newly appointed CEOs. But firms regularly employ retention or incentive plans when experiencing distress to prevent critical employees from leaving when they are most needed (Goyal and Wang, 2017). Employee turnover results in a loss of continuity coupled with high search and training costs for replacement personnel. Beneish et al. (2017) find that 57 percent of CEOs associated with intentional misreporting retain their jobs, implying the costs of removing CEOs is high, especially if the incumbent CEO has a strong track record relative to industry peers prior to the period before the misreporting begins. The board fires the CEO if future firm value under the CEO is expected to be lower than under the best alternative CEO less adjustment costs (e.g. search costs, severance pay).

Restructuring strategies are complicated processes and choices are influenced by and interact with the agreements and conflicts of interest among stakeholders. Firms in the emerging economies are characterized by high growth, high leverage, less effective corporate governance and different legal and institution context as compared to the firms in the developed economies. The purpose of this paper is to explain the agency monitoring variables that influence decisions to select and/or avoid restructuring strategies of the firms that have experienced a performance decline in an emerging economy. The authors have chosen Thailand as an example of an emerging economy as it was believed as the center of the major Asian economic crisis in mid-1997.

The sample of the study comprises 120 Thai non-financial firms listed on the Stock Exchange of Thailand, all of which experienced a performance decline for two consecutive years during 1997-2008; the years 1997 and 1998 coinciding with financial crisis. The study uses panel logistic regressions to examine the likelihood of the choices of restructuring strategies given the agency variables after controlling for other possible influences.

The results show that restructuring strategy choices are significantly influenced by both agency factors and control variables. The results show both similarities to and differences from earlier studies of the developed economies. The similarities are found in leverage agency behaviors. The differences in the results are found in the types and the details of the agency factors, in particular the management ownership and governance factors. The authors also explore the effects of the agency variables interactions on the choices of restructuring strategies of the performance-declining firms.

Emerging economies have many similarities, but they also demonstrate some country specific differences. This study is confined to one single country, and thus, may not be comparable with other emerging economies due to differences in factors such as regulatory, institutional, tax environments etc. However, it does show a way to conduct such studies in the context of other countries.

To the knowledge, this is the first comprehensive study of corporate restructuring in an emerging economy, particularly of the South-East Asian economy. The authors also show, for the first time, the agency variables interactions effects on the restructuring strategies of the firms. Thus, the study contributes to the growing literature of the corporate restructuring in terms of the contextual knowledge of the emerging economies.

The purpose of this paper is to empirically examine the relationship between chief executive officer characteristics and corporate turnaround performance of declining firms attempting turnaround.

A sample of 60 US manufacturing firms that experience severe performance decline and turnaround from 1985 to 2000 are selected from a population of declining manufacturing firms in the COMPUSTAT database. Data on leadership characteristics are collected and analyzed using ordinary least square regression analysis and ANOVA.

The general findings of the study provide empirical support for the upper echelons theory that emphasizes leadership characteristics as predictors of organizational outcomes. More specifically, the findings suggest the strong and adverse influence of long executive tenure on corporate turnaround performance. The findings also indicate that executives with output‐related functional background positively influence corporate turnaround performance in declining firms attempting turnaround.

The findings of this paper have important implications for corporate governance issues in declining firms attempting turnaround. In addition, the findings also lend further empirical support for the role of strategic leadership in shaping organizational outcomes especially under declining environmental conditions.

This paper contributes to the turnaround literature by providing empirical evidence on the role of strategic leadership in formulating and implementing turnaround strategies in declining firms. It also provides further support for the upper echelons perspective and strategic decision making.

The purpose of this paper is to examine the dynamics of human capital accumulation and human capital depletion in the processes leading to business failure.

Building on the human capital theory, strategic human resource and business failure literature, this paper develops a conceptual framework which links the inward and outward dimensions of human capital flows in the business failure process.

The analysis sheds light on why some highly skilled individuals may opt to flee declining firms to avoid being stigmatised whilst others become motivated to joint such firms.

The paper suggests that understanding the nature and dynamics of both flows are essential when seeking to avert collapse.

In spite of a growing body of research on business failure and intense competition for top talent, much of the existing literature has circumvented the relationship between them. This study develops a unified model towards enhancing our understanding of the human capital flows.

Based on the theory of basic human values, this study aims to examine the impact of CEO conservation (i.e. security, conformity and tradition) and openness to change (i.e. self-direction, stimulation and hedonism) values on one of the most conflictual decisions inside a firm: workforce downsizing.

The hypothesis testing was done in the context of all workforce downsizing decisions made by German companies (and their CEOs) listed on the German Prime-Index between 2005 and 2019. A software-based psycholinguistic assessment of various sources of CEO communications was conducted to tap into their underlying values.

Tobit regression analysis confirms that CEO conservation and openness-to-change values impact the severity of workforce downsizing. Namely, the higher the CEO conservation values, the lower the downsizing severity (i.e. employees dismissed in relation to overall workforce). In contrast, the higher the CEO openness to change values, the higher the downsizing severity.

Against prior research that has centered around political ideology as a proxy to understand the mechanisms through which values impact strategic decisions, the present study employs advanced measurement approaches to assess the general impact of CEO values on critical firm decisions. As such, the study contributes to upper echelons research by offering a new perspective on how CEO values impact critical firms' decisions.

We survey top managers of Fortune 1000 companies to learn if industry practitioners agree with the findings of academic research on specific corporate governance issues. We focus on board composition and size, executive/director compensation and ownership, firm performance, and other issues. The results suggest that the views of responding managers appear at odds with other empirical evidence provided in the literature on the majority of the issues examined. In addition, respondents are often unable to offer an opinion about whether they agree or disagree with specific corporate governance issues.

For those interested in studying the effects of stakeholder theory on organizational performance, the establishment of measures that represent both explicit and implicit claims on the firm’s outputs is vital. While net organizational capital (NOC) has been shown to represent the value of the firm after honouring implicit claims of stakeholder groups, practical application requires the use of surrogates such as net intangible assets (NIA). Attempts to extend research in this area by establishing additional surrogates, segment sales (SS) and research and development intensity (RD), which can be easily calculated and reflect operating characteristics of the organization being observed. Concludes that RD is a reasonable indicator of the firm’s NIA for both bond upgrade and downgrade situations, but that SS can be viewed as a surrogate for NIA during upgrade situations. Both, however, can provide great insights to the researcher and can be used to assist in classifying firms with respect to stakeholder group influence.

The relationship between the clarity of proxy statement presentation of executive compensation, the level of compensation and firm performance was examined Consistent with the argument that firms attempt to avoid potential threats to legitimacy, clarity of presentation and the level of executive compensation were negatively related. There was no relation between firm performance and presentation clarity. Management stock ownership was not related to clarity of presentation.

The purpose of this paper is to determine whether the strength of corporate governance influences the firm’s ability to retain their key knowledge workers or inventors.

This paper links agency and innovation theory to develop the hypotheses. Agency theory predicts that the interests of employees are counter to those of firm owners. The authors predict that as shareholder power grows as corporate governance strengthens, inventors who are highly productive, and those who pursue risky but valuable exploratory innovation will leave the firm. Given prior scholarship in innovation theory establishing the critical contributions that new knowledge creation and exploratory innovation make to firms’ competitive advantage, the authors consider whether stronger firm-level corporate governance leads to the erosion of the firm’s competitive advantage. The hypotheses are empirically tested using generalized least squares estimation on a data set that combines data on firms, their patents and the governance provisions these firms adopt.

Using a 10-year sample of publicly traded US firms, the authors find that stronger corporate governance erodes the very foundation of a firm’s innovation capabilities. Stronger corporate governance reduces management job security, which makes managers more risk-averse. This heightened “managerial myopia” results in increased departures of highly valuable inventors employed by the firm. The authors show that these departing inventors are more productive inventors than those who remain and engage in more exploratory R&D than the remaining inventors at the firm.

The findings raise questions on the appropriateness of the adoption of governance provisions strengthening shareholder rights in firms pursuing innovation.

According to behavioral research, aspirations influence a firm's search – exploitive and explorative – for solutions that satisfy a firm's goals. Yet, such goal seeking behavior is adaptive to a firm's past experiences and not to a manager's expectations of its firm's future. A manager's expectations are often explained in terms of their confidence in future events. The purpose of this study is to address the following research question: how does a manager's confidence influence its expectations of a firm's future performance and goals; and how do these future expectations influence a firm's exploitive/explorative search?

In drawing on cognition and legitimacy research, a conceptual model was developed to explain the antecedents and outcomes of a firm's “forward-looking” aspirations. The antecedents to a firm's forward-looking aspirations are attributed to a manager's overconfidence – anchoring, confirmation and availability – biases. In using strategic legitimacy explanations, these biases introduce distinct types of forward-looking (exploitive/explorative) search that legitimize/de-legitimize a manager's forward-looking aspirations.

A key finding of this study is that it introduces a strategic decision-making process in which a firm's exploitive/ explorative search is adaptive toward its forward-looking aspirations.

This forward-looking strategic decision-making process offers research implications to understand how a firm's future goals and expectations can offer new understandings of their past experiences and traditions and explains how a manager's overconfidence biases can influence the assessment of a firm's social aspirational groups.

In addition, this study also offers practical implications in which illustrative examples are used to explain this study's forward-looking strategic decision-making process.

A distinct contribution of this study is that it introduces a forward-looking orientation that has not been previously examined the backward focus of behavioral research.