The Value Implications of Mandatory Clawback Provisions

65 Pages Posted: 28 Dec 2016 Last revised: 13 Jul 2018

See all articles by Tor-Erik Bakke

Tor-Erik Bakke

University of Illinois at Chicago - Department of Finance

Hamed Mahmudi

University of Delaware - Department of Finance

Aazam Virani

University of Arizona - Department of Finance

Date Written: June 28, 2018

Abstract

We study the value implications of clawback provisions by examining the stock market’s reaction to an SEC proposal to mandate clawbacks. We find that firms without a clawback provision experienced positive abnormal returns around the announcement, relative to firms with an existing clawback provision. The announcement’s impact is strongest for firms with more powerful management. Our findings suggest that clawbacks are value-enhancing, but may be resisted by powerful managers, which is why regulation mandating clawbacks may be necessary. These findings are particularly topical given the current efforts to roll-back the proposed clawback rules as well as governance regulation more generally.

Suggested Citation

Bakke, Tor-Erik and Mahmudi, Hamed and Virani, Aazam, The Value Implications of Mandatory Clawback Provisions (June 28, 2018). Available at SSRN: https://ssrn.com/abstract=2890578 or http://dx.doi.org/10.2139/ssrn.2890578

Tor-Erik Bakke

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
6087707753 (Phone)

HOME PAGE: http://https://sites.google.com/site/tebakke/

Hamed Mahmudi

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
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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