Clawback Enforcement, Executive Pay, and Accounting Manipulation

47 Pages Posted: 1 Oct 2018 Last revised: 25 Mar 2024

Date Written: December 13, 2022


Clawback provisions entitle shareholders to recover previously-awarded compensation from managers involved in accounting manipulation or misconduct. In a principal-agent model, we show that strong clawback enforcement tilts managerial compensation towards the short-term but may increase manipulation. In contrast, weak enforcement alleviates the shareholders' incentives to tilt compensation towards the short-term and reduces manipulation. While weak enforcement and lack of commitment may generate a time inconsistency problem, the clawback adoption decision may foster further governance changes that elicit ex post enforcement. We discuss the regulatory implications of the theory and its consistency with results in empirical studies.

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

JEL Classification: D86, G34, J33, K41

Suggested Citation

Remesal, Alvaro, Clawback Enforcement, Executive Pay, and Accounting Manipulation (December 13, 2022). Available at SSRN: or

Alvaro Remesal (Contact Author)

CUNEF Universidad ( email )

Calle de los Pirineos 55
Madrid, 28040

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