The Impact of Clawback Adoption on Executive Cash Compensation Structure

54 Pages Posted: 15 Jan 2019

See all articles by Hanni Liu

Hanni Liu

Manhattan College

Harrison Liu

University of Texas at San Antonio - Department of Accounting

K. K. Raman

The University of Texas at San Antonio

Date Written: January 14, 2019

Abstract

Prior research suggests an asymmetric relation between CEO cash compensation and firm performance as measured by market-adjusted stock returns. As discussed by Leone et al. (2006), the underlying rationale for this asymmetry is the difficulty in the ex post settling- up of cash compensation. We examine a later period (2007-2014) and find asymmetry between cash compensation (for CEOs and CFOs) and firm performance as measured by market-adjusted stock returns as well as accounting-based measures. Further, we find that clawback adoption is followed by reduced asymmetry in this relation, a finding consistent with clawback’s ex post settling-up characteristics. We contribute to the literature by showing that clawback adoption has had a favorable impact on the structure of CEO/CFO compensation consistent with Holmstrom (1979).

Keywords: Clawback, Executive Compensation, Governance

Suggested Citation

Liu, Hanni and Liu, Harrison and Raman, K. K., The Impact of Clawback Adoption on Executive Cash Compensation Structure (January 14, 2019). 2019 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=3315571 or http://dx.doi.org/10.2139/ssrn.3315571

Hanni Liu

Manhattan College ( email )

Manhattan College Parkway
Riverdale, NY 10471
United States
7188627465 (Phone)

Harrison Liu (Contact Author)

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States

K. K. Raman

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

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