Success or failure? Managerial ability and firm emergence from Chapter 11 bankruptcy proceedings

Abstract This study investigates the impact of managerial ability on the likelihood of firms emerging from Chapter 11 bankruptcy. Drawing on a sample of 1,054 U.S. bankrupt firms, we uncover a counterintuitive dynamic: firms led by high‐ability managers are significantly less likely to emerge successfully. This finding persists even after controlling for firm characteristics, governance mechanisms, macroeconomic conditions, regulatory events, and emergence characteristics. Further analyses indicate that the CEO's expertise is crucial in increasing the likelihood of firm emergence, rather than managerial ability alone. We also find that firms retaining incumbent managers with low but ostensibly “non‐replaceable” ability consistently fail to restructure effectively. In contrast, introducing new managers with early replacement can mitigate the likelihood of the firm emerging from bankruptcy. Overall, our results highlight the complex and context‐dependent influence of managerial ability during financial distress, revealing the success and failure of bankrupt firms in the bankruptcy Chapter 11 recovery process.