Clawback Provisions, Executive Pay, and Accounting Manipulation

Alvaro Remesal ()
Additional contact information
Alvaro Remesal: CUNEF, https://www.cunef.edu/

Working Papers from CEMFI

Abstract: Clawback provisions allow shareholders to recover previously-awarded compensation from managers involved in accounting manipulation or misconduct. I assess theoretically and empirically the effects of clawback provisions on the structure of managerial compensation and the frequency of accounting manipulation. In a principal-agent model I show how, in the presence of clawback enforcement frictions, clawback adoption can tilt the optimal compensation schedule towards the long-term. I test the empirical relevance of the theoretical implication using data from U.S. public firms in the 2002-2016 period. The identification deals with the endogenous timing of adoption and measurement error by exploiting variation in clawback adoption across a firm's board interlock. I find that, in those firms with fewer pre-adoption independent directors, clawback adoption increases the wealthperformance sensitivity of unvested (long-term) compensation, while reduces the frequency of earnings manipulation. The results suggest that enforcement frictions are relevant, particularly for firms where managers face weak monitoring by shareholders.

Keywords: Clawback; executives; governance; compensation; accounting manipulation. (search for similar items in EconPapers)
JEL-codes: D86 G34 J33 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cemfi.es/ftp/wp/1808.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cmf:wpaper:wp2018_1808

Access Statistics for this paper

More papers in Working Papers from CEMFI Contact information at EDIRC.
Bibliographic data for series maintained by Araceli Requerey ().