Clawback Provisions

60 Pages Posted: 19 Mar 2012 Last revised: 16 Jul 2017

See all articles by Ilona Babenko

Ilona Babenko

Arizona State University

Benjamin Bennett

Tulane University - A.B. Freeman School of Business

John M. Bizjak

Texas Christian University

Jeffrey L. Coles

University of Utah - Department of Finance; Arizona State University (ASU) - Finance Department

Date Written: July 14, 2017

Abstract

We provide a detailed analysis of 4,103 compensation clawback provisions used by S&P 1,500 firms from 2000–2013. The adoption and breadth of a clawback provision are related to the scope for executive malfeasance, compensation-related reasons to misrepresent performance; and firm governance. Executives respond to clawbacks by lowering firm risk and pursuing more conservative corporate policies, including reduced investment and R&D spending and fewer patent filings. The stock market reacts positively to the news of clawback adoption and the value increase is larger for stronger provisions and when the market can expect a more sizable reduction in firm risk. Overall, clawbacks appear to serve as more than simple window-dressing and appear to be tailored to fit firm and managerial characteristics.

Keywords: clawback, recoupment, recover, executive compensation, employee pay, accounting restatement, fraud, corporate governance

JEL Classification: G32, G34, J33, M41, M52, M55

Suggested Citation

Babenko, Ilona and Bennett, Benjamin and Bizjak, John M. and Coles, Jeffrey L., Clawback Provisions (July 14, 2017). Available at SSRN: https://ssrn.com/abstract=2023292 or http://dx.doi.org/10.2139/ssrn.2023292

Ilona Babenko

Arizona State University ( email )

Department of Finance
W.P. Carey School of Business
Tempe, AZ 85287
United States

Benjamin Bennett

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

John M. Bizjak

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-257-4260 (Phone)

Jeffrey L. Coles (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-587-9093 (Phone)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-4475 (Phone)
480-965-8539 (Fax)

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