Not All Clawbacks Are the Same: Consequences of Strong vs. Weak Clawback Provisions

Posted: 21 Jun 2018

See all articles by Michael H.R. Erkens

Michael H.R. Erkens

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Ying Gan

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management

Date Written: June 5, 2018

Abstract

We develop a Clawback Strength Index and show that while some firms adopt unambiguous and strong clawback provisions, others adopt weak ones. We find that strong clawback adopters experience improvements in financial reporting quality, fewer CEO turnovers, and lower CEO pay. We advance two possible explanations: First, clawback strength may be primarily responsible for the improvements in reporting quality. Second, strong clawbacks may yield benefits because they are part of a broader reform package. While our findings on reporting quality and CEO turnover are consistent with both explanations, our results on CEO pay support only the broader reform explanation.

Keywords: clawback provisions; corporate governance; linguistic analysis; reporting quality

JEL Classification: G30, G34, G35, K22, M21, M41

Suggested Citation

Erkens, Michael H.R. and Gan, Ying and Yurtoglu, B. Burcin, Not All Clawbacks Are the Same: Consequences of Strong vs. Weak Clawback Provisions (June 5, 2018). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3191153

Michael H.R. Erkens (Contact Author)

Erasmus University Rotterdam - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Ying Gan

Erasmus University Rotterdam - Erasmus School of Economics ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

B. Burcin Yurtoglu

WHU - Otto Beisheim School of Management ( email )

Chair of Corporate Finance
Burgplatz 2
Vallendar, 56179
Germany
+49 261 6509-721 (Phone)
+49 261 6509-729 (Fax)

HOME PAGE: http://www.whu.edu/forschung/fakultaet/finance-group/corporate-finance/

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