The Value Implications of Mandatory Clawback Provisions

69 Pages Posted: 28 Dec 2016 Last revised: 21 Nov 2022

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: November 8, 2022

Abstract

We study the value implications of clawback provisions by examining the stock market’s reaction to an SEC proposal to make clawback provisions mandatory. The proposed rules were significantly stronger than existing clawback provisions that many firms had voluntarily adopted. We find that firms without a clawback provision experienced positive abnormal returns of 0.6% in a 3-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 (November 8, 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
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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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