An analysis of board of director size and composition in bankrupt organizations

Abstract

Research on corporate boards of directors has suggested that organizations rely on boards to control external interdependencies. As such, organizations often build large boards staffed with a large number of outsiders who have access to critical resources. Little work has been done, however, to investigate the impact of boards in problematic environments or during crisis situations. Using a matched pairs design, this study examined a sample of 127 bankrupt firms along with an equal number of nonbankrupt firms. In the period leading to bankruptcy declaration, declining firms experiences loss of outside directors and decline in overall board size. When compared to their nonbankrupt counterparts, bankrupt companies were also found to have significantly different board structures and to make more changes in their boards in the period after Chapter 11 filing. Possible reasons for these differences are discussed along with the implications of these findings for researchers and corporate directors.