Clawback enforcement heterogeneity and the horizon of executive pay: empirical evidence

Alvaro Remesal

International Journal of Accounting & Information Management, 2024, vol. 32, issue 5, 773-802

Abstract: Purpose - Clawback provisions entitle shareholders to recover previously awarded incentive compensation after the discovery of accounting manipulation or misconduct. The author evaluates the impact of clawback enforcement heterogeneity on the horizon of executive compensation. Design/methodology/approach - The author provides empirical tests to evaluate the impact of clawback adoption decisions. The author deals with the endogeneity of clawback adoption decisions through an instrumental variables strategy that exploits the transmission of governance choices within firms’ networks. Findings - While the author finds that clawback adoption reduces the frequency of accounting manipulation, this reduction is accompanied by heterogeneous effects on the horizon of executive pay across firms. Clawback adopters with high director independence, high leverage, high managerial termination payments and low executive ownership tilt their compensation toward the short-term. Practical implications - The results, robust to alternative specifications, suggest that clawbacks allow strong-enforcement firms to tilt compensation toward the short-term, offsetting some of the direct manipulation disincentives generated by the clawback. The stock market reacts positively to the adoption in firms with weak enforcement, suggesting that clawbacks significantly reduce the managers’ rent-extraction capacity. Originality/value - Using a novel empirical and identification approach, the results suggest that clawbacks allow strong-enforcement firms to tilt compensation toward the short-term, offsetting some of the direct manipulation disincentives generated by the clawback.

Keywords: Clawback; Executives; Governance; Compensation; Accounting Manipulation; D86; G34; J33; K41 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:ijaimp:ijaim-04-2023-0099

DOI: 10.1108/IJAIM-04-2023-0099

Access Statistics for this article

International Journal of Accounting & Information Management is currently edited by Dr Xin (Robert) Luo and Professor Han Donker

More articles in International Journal of Accounting & Information Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().