Clawback Enforcement, Executive Pay, and Accounting Manipulation

81 Pages Posted: 1 Oct 2018 Last revised: 17 Jul 2019

Date Written: May 3, 2019


Clawback provisions entitle shareholders to recover previously-awarded incentive compensation from managers involved in accounting manipulation or misconduct. I study theoretically and empirically the impact of clawback provisions on the horizon of executive pay in the presence of enforcement frictions. In a principal-agent model I show how, to deter manipulation, (i) clawback adoption substitutes for long-term pay when enforcement is strong, and (ii) clawback adoption can complement long-term pay when enforcement is weak. Empirical tests using samples of propensity-score matched firms support the predictions. Weak enforcement hinders the effectiveness of clawbacks, but firms can optimally complement them by lengthening the pay horizon.

Keywords: Clawback, Executives, Governance, Compensation, Accounting Manipulation, Litigation

JEL Classification: D86, G34, J33, K41

Suggested Citation

Remesal, Alvaro, Clawback Enforcement, Executive Pay, and Accounting Manipulation (May 3, 2019). Available at SSRN: or

Alvaro Remesal (Contact Author)

CUNEF ( email )

Leonardo Prieto Castro 2
Madrid, 28040

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