Abstract
This article provides striking evidence that U.S.-style financial reorganization leads to significant increases in the concentration of equity ownership. In a study of 77 publicly held firms that restructured their debt privately or filed for bankruptcy during the 1980s, the authors find that these firms also systematically restructured senior managers' incentives and, in the process, created a much stronger link between managers' wealth and firm performance. The creation of pay-for-performance in financially distressed firms was a direct consequence of high turnover in the top executive suite. When companies become financially distressed, compensation practices come to more closely resemble those found in venture capital firms as well as LBOs and other highly leveraged organizations.
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