Firm-Initiated Clawback Provisions and Insider Trading

49 Pages Posted: 3 Feb 2020 Last revised: 16 Sep 2022

See all articles by Trinh Hue Le

Trinh Hue Le

Monash University - Monash Centre for Financial Studies; University of Queensland

Barry R. Oliver

University of Queensland - Business School; Financial Research Network (FIRN)

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Date Written: January 10, 2020

Abstract

This paper investigates the causal effect of firm-initiated compensation clawback provisions on the profitability of insider trading. We find that clawback provisions reduce the ability of insiders to generate profits from their trades, especially insider sales, based on their information advantage. However, this effect is not associated with prior information asymmetry conditions as the literature suggests. Instead, our evidence suggests that firm-initiated clawback provisions prevent firm insiders from extracting wealth relative to other market participants. Overall, our findings suggest that clawback provisions are effective in preventing insiders from withholding value-relevant information to trade gainfully.

Keywords: Clawback provisions, Insider trades, Insider trading profitability, Information asymmetry

JEL Classification: G14

Suggested Citation

Le, Trinh and Oliver, Barry Ross and Tan, Kelvin Jui Keng, Firm-Initiated Clawback Provisions and Insider Trading (January 10, 2020). Available at SSRN: https://ssrn.com/abstract=3517284 or http://dx.doi.org/10.2139/ssrn.3517284

Trinh Le (Contact Author)

Monash University - Monash Centre for Financial Studies ( email )

13/f 30 Collin Street
Melbourne, 3000
Australia

University of Queensland ( email )

St Lucia
Australia

Barry Ross Oliver

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Kelvin Jui Keng Tan

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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