The Value Implications of Mandatory Clawback Provisions

51 Pages Posted: 28 Dec 2016 Last revised: 4 Jan 2023

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: December 23, 2022

Abstract

We examine the stock market reaction to the announcement of an SEC proposal to make clawback provisions mandatory. The SEC’s proposed rules were significantly stronger than existing clawback provisions that many firms had voluntarily adopted. We find that firms without a clawback provision exhibited positive abnormal returns of 0.6% in a 5-day window around the announcement of the proposed rule. Firms with a clawback provision did not exhibit statistically significant abnormal announcement returns. The announcement’s impact is strongest for firms with more powerful management. Our findings suggest that the mandatory clawbacks are value-enhancing on average.

Suggested Citation

Bakke, Tor-Erik and Mahmudi, Hamed and Virani, Aazam, The Value Implications of Mandatory Clawback Provisions (December 23, 2022). 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
273
Abstract Views
2,556
Rank
169,416
PlumX Metrics