The Effect of Mandatory Clawback Provisions on Corporate Innovation: Quasi-Experimental Evidence from China

Nan Lin, Ruoyu Weng and Rui Fan

Emerging Markets Finance and Trade, 2023, vol. 59, issue 1, 265-280

Abstract: The clawback provisions adoption has received increasing attention in recent studies. Based on US setting, several studies find that voluntary clawback provisions may impede corporate innovation. Exploiting a policy experiment that requires SOEs to adopt mandatory clawback provisions in China, we find that adopting mandatory clawback provisions enhances corporate innovation. The cross-sectional tests show that the effect is stronger in firms with more related party transactions and in firms with less institutional investors, suggesting that improving corporate governance is a plausible channel through which clawback provisions affect corporate innovation. Overall, our study indicates that mandatory clawback provisions may play an active role in countries with weak corporate governance.

Date: 2023
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DOI: 10.1080/1540496X.2022.2147787

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