The Value Implications of Mandatory Clawback Provisions

63 Pages Posted: 28 Dec 2016 Last revised: 12 Jan 2025

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: February 17, 2023

Abstract

We find evidence suggesting that mandatory clawback provisions are value-enhancing. We examine the stock market reaction to the SEC’s announcement of a proposed rule 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 exhibited positive abnormal returns of 0.6% around the announcement of the proposed rule. Firms with a clawback provision did not exhibit statistically significant abnormal announcement returns. The announcement’s return is most positive for firms without clawbacks that have more powerful management.

Keywords: clawback provisions, corporate governance, executive compensation, financial restatements, regulation

Suggested Citation

Bakke, Tor-Erik and Mahmudi, Hamed and Virani, Aazam, The Value Implications of Mandatory Clawback Provisions (February 17, 2023). 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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