Clawback Provisions and Firm Risk

Ilona Babenko, Benjamin Bennett, John M. Bizjak, Jeffrey Coles and Jason J. Sandvik
Additional contact information
Ilona Babenko: Arizona State University
Benjamin Bennett: Ohio State University (OSU) - Department of Finance
John M. Bizjak: Texas Christian University
Jason J. Sandvik: University of Utah

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Panel OLS and GMM-IV estimates indicate that executives respond to the adoption of a compensation clawback provision by decreasing firm risk. The mechanisms that transmit incentives to decisions and decisions to risk appear to be more conservative investment and financial policies and preemptive management of ESG, legal, and cyberattack risks. The stock market reaction to the announcement of a clawback adoption, as well as post-adoption stock and accounting performance, are significantly and positively related to the actual and predicted reduction in firm risk. The reduction in firm risk, arising from adoption of a clawback policy, appears to benefit shareholders.

JEL-codes: G32 G34 J33 M41 M52 M55 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-hrm, nep-lma, nep-ore and nep-rmg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2019-13

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