Clawback enforcement, executive pay, and accounting manipulation

Alvaro Remesal ()
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Alvaro Remesal: CUNEF Universidad

European Journal of Law and Economics, 2025, vol. 59, issue 2, No 2, 227-255

Abstract: Abstract Clawback provisions entitle shareholders to recover previously-awarded compensation from managers involved in accounting manipulation or misconduct. In a principal-agent model, we show that strong clawback enforcement tilts managerial compensation towards the short-term but may increase manipulation. In contrast, weak enforcement alleviates the shareholders’ incentives to tilt compensation towards the short-term and reduces manipulation. While weak enforcement and lack of commitment may generate a time inconsistency problem, the clawback adoption decision may foster further governance changes that elicit ex post enforcement. We discuss the regulatory implications of the theory and its consistency with results in empirical studies.

Keywords: Clawback; Executives; Governance; Compensation; Accounting manipulation (search for similar items in EconPapers)
JEL-codes: D86 G34 J33 K41 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10657-024-09801-3

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