Voluntary Clawback Adoption and Analyst Following, Forecast Accuracy, and Bias

Journal of Accounting and Finance, 18(2), 106-122, 2018

36 Pages Posted: 11 Jan 2019

See all articles by Henry Mburu

Henry Mburu

THE CATHOLIC UNIVERSITY OF EASTERN AFRICA

Alex P. Tang

Morgan State University

Date Written: November 29, 2017

Abstract

Adoption of voluntary clawback provisions has been on the increase since 2002 with the passage of the Sarbanes-Oxley Act. Existing studies, in general, have documented positive outcomes associated with the adoption. Most of these studies examine the adoption from the angles of financial reporting risk and compensation, with a few exceptions. We, on the other hand, study the adoption from financial analysts’ point of view who tend to be the most important users of financial reports. We use a one-to-one propensity score matching sample of firms that voluntarily adopt restatement triggered clawback provisions and similar non-adopters. In particular, we examine financial analyst following, financial analyst forecast accuracy, and financial analyst forecast optimistic bias. We find that firms that adopt clawback provisions are followed by more financial analysts. We also find that financial analysts provide more accurate forecasts, and with less optimistic bias. Collectively, our results suggest that the adoption of clawback provisions is associated with meaningful effect among financial analysts.

Keywords: clawback adoption, clawback provisions, analyst following, forecast accuracy, forecast bias

JEL Classification: G24, G38, K22, M41

Suggested Citation

Mburu, Henry and Tang, Alex P., Voluntary Clawback Adoption and Analyst Following, Forecast Accuracy, and Bias (November 29, 2017). Journal of Accounting and Finance, 18(2), 106-122, 2018, Available at SSRN: https://ssrn.com/abstract=3308106

Henry Mburu (Contact Author)

THE CATHOLIC UNIVERSITY OF EASTERN AFRICA ( email )

P. O. BOX 62157
00200
NAIROBI, 00200
Kenya
+254739268665 (Phone)

HOME PAGE: http://www.cuea.edu

Alex P. Tang

Morgan State University ( email )

1700 E. Cold Spring Ln
Baltimore, MD 21251
United States

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