Clawback adoptions and institutional investment decisions

Kwok Tong Samuel Cheung, Simon Yu Kit Fung, K.K. Raman and Jianfu Shen

Journal of Corporate Finance, 2025, vol. 91, issue C

Abstract: We examine whether voluntary adoptions of clawback (executive compensation recovery) provisions are followed by changes in market outcomes, specifically changes in institutional investment decisions. Institutional investors dominate the US capital markets and are generally viewed as informed investors. Using difference-in-differences (DID) research design, we find that clawback adoptions are followed by a decrease (increase) in transient (dedicated) institutional investors' equity holdings. Our findings are robust to both level and change specifications. Also, the decrease (increase) in holdings for transient (dedicated) investors is stronger for adopters who display reduced information asymmetry (increase in long-term orientation) following clawback adoption. The results are robust to several tests for endogeneity and alternative specifications. Collectively, our findings suggest that clawback adoptions make the firm potentially less attractive to transient institutions and more desirable to dedicated institutions. Our findings have implications for clawback adoptions that are now mandatory for all US public companies with an effective date (most recently) of December 1, 2023.

Keywords: Executive compensation recovery (clawback); Institutional investors; Transient/dedicated institutions; Information asymmetry; Long-term orientation (search for similar items in EconPapers)
JEL-codes: G23 G30 G38 M40 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119925000112
Full text for ScienceDirect subscribers only

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:eee:corfin:v:91:y:2025:i:c:s0929119925000112

DOI: 10.1016/j.jcorpfin.2025.102743

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().