Top Management Resignation and Firms' Subsequent Bankruptcy

ABSTRACT

Agency theory indicates that a moral hazard occurs when an agent (manager) with superior information has an incentive to behave inappropriately from the perspective of the principal (investor) with inferior information. Because of the superior information that top executives have, they will recognize if the company is declining before outside investors. This gives the executives an opportunity to resign prior to the investors' awareness of the decline. An executive can use this private information to benefit at the expense of the investing public. This study ...more