Abstract

https://ssrn.com/abstract=2890578
 


 



Do Clawbacks Have Claws? The Value Implications of Mandatory Clawback Provisions


Tor-Erik Bakke


University of Oklahoma - Division of Finance

Hamed Mahmudi


University of Oklahoma - Division of Finance

Aazam Virani


University of Arizona - Department of Finance

December 27, 2016


Abstract:     
Performance-based compensation can give managers an incentive to misreport financial information. This incentive can be mitigated by requiring the recoupment of erroneously awarded performance-based compensation from executives, which is known as a clawback provision. We study the value implications of having a clawback provision by examining the stock market’s reaction to the SEC’s announcement of proposed Rule 10D-1 that mandates clawback provisions. We find that relative to firms that had voluntarily adopted a clawback provision prior to the SEC’s announcement, firms that did not have a clawback provision experienced positive abnormal returns, suggesting that clawback provisions are value-enhancing. Furthermore, the announcement had the greatest positive impact on firms without a clawback with more powerful managers. Our findings suggest that clawbacks create a valuable disincentive to misreport information, but that despite this, powerful managers may resist their adoption, which is why regulation mandating clawbacks may be necessary.

Number of Pages in PDF File: 46


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Date posted: December 28, 2016  

Suggested Citation

Bakke, Tor-Erik and Mahmudi, Hamed and Virani, Aazam, Do Clawbacks Have Claws? The Value Implications of Mandatory Clawback Provisions (December 27, 2016). Available at SSRN: https://ssrn.com/abstract=2890578

Contact Information

Tor-Erik Bakke
University of Oklahoma - Division of Finance ( email )
Norman, OK 73019
United States
Hamed Mahmudi
University of Oklahoma - Division of Finance ( email )
Norman, OK 73019
United States
Aazam Virani (Contact Author)
University of Arizona - Department of Finance ( email )
McClelland Hall
Tucson, AZ 85721-0108
United States
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