Mandatory Clawback Provisions, Information Disclosure, and the Regulation of Securities Markets

Abstract

Chan, Chen, Chen, and Yu (2012) find that voluntary adoption of compensation clawback provisions is followed by fewer financial restatements and fewer auditor reports of material internal control weaknesses, higher earnings response coefficients, and reduced auditing fees and lags. They conclude that voluntary adoption of clawback provisions leads to increased financial integrity. Based on these findings they suggest that U.S. government mandated clawback provisions will be effective in reducing material financial misstatements. I offer possible alternative interpretations of CCCY’s results and discuss issues surrounding government regulation of clawback provisions in particular and corporate behavior more generally.