Compensation Clawback Policies and Corporate Lawsuits

Journal of Financial Regulation and Compliance, Forthcoming

29 Pages Posted: 12 Dec 2018

See all articles by Matteo P. Arena

Matteo P. Arena

Marquette University

Nga Nguyen

Marquette University

Date Written: June 20, 2018

Abstract

Since the 2008 financial crisis, executive compensation has been the subject of increased regulation, including the mandatory adoption of compensation clawback policies by the Dodd Frank Act. By allowing firms to recoup compensation from managers who breach their fiduciary duty, clawbacks provide a form of discipline that potentially reduces the likelihood of managerial wrongdoing which, in turn, lowers the risk of corporate lawsuits. We examine the association between clawback provisions and corporate litigation and find that firms with higher litigation risk are more likely to adopt a clawback policy. In addition, after the adoption of clawback provisions, litigation risk significantly declines suggesting that clawback policies are effective in reducing the likelihood of corporate lawsuits. Furthermore, firms with clawback policies are more likely to have lawsuits against them dismissed or settled for lower amounts.

Keywords: Risk Management, Litigation Risk, Corporate Lawsuits, Clawback, Executive Compensation

JEL Classification: G30, G34, G38, K20, K22

Suggested Citation

Arena, Matteo P. and Nguyen, Nga, Compensation Clawback Policies and Corporate Lawsuits (June 20, 2018). Journal of Financial Regulation and Compliance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3287945

Matteo P. Arena

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Nga Nguyen (Contact Author)

Marquette University ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
33
Abstract Views
548
PlumX Metrics