The Economics of Deferral and Clawback Requirements

Florian Hoffmann, Roman Inderst and Marcus Opp

Journal of Finance, 2022, vol. 77, issue 4, 2423-2470

Abstract: We analyze the effects of regulatory interference in compensation contracts, focusing on recent mandatory deferral and clawback requirements restricting incentive compensation of material risk‐takers in the financial sector. Moderate deferral requirements have a robustly positive effect on risk‐management effort only if the bank manager's outside option is sufficiently high; otherwise, their effectiveness depends on the dynamics of information arrival. Stringent deferral requirements unambiguously backfire. Our normative analysis characterizes whether and how deferral and clawback requirements should supplement capital regulation as part of the optimal policy mix.

Date: 2022
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https://doi.org/10.1111/jofi.13160

Related works:
Working Paper: The Economics of Deferral and Clawback Requirements (2022)
Working Paper: The economics of deferral and clawback requirements (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:77:y:2022:i:4:p:2423-2470

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