Clawback Provisions, Executive Pay, and Accounting Manipulation
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Alvaro Remesal [1]
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[1] CUNEF
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- Localización: Documentos de Trabajo ( CEMFI ), Nº. 8 (CEMFI Working Paper No. 1808, September 2018), 2018
- Idioma: inglés
- Enlaces
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Resumen
Clawback provisions allow shareholders to recover previously-awarded compensation from managers involved in accounting manipulation or misconduct. I assess theoretically and empirically the effects of clawback provisions on the structure of managerial compensation and the frequency of accounting manipulation. In a principal-agent model I show how, in the presence of clawback enforcement frictions, clawback adoption can tilt the optimal compensation schedule towards the long-term. I test the empirical relevance of the theoretical implication using data from U.S. public firms in the 2002-2016 period. The identification deals with the endogenous timing of adoption and measurement error by exploiting variation in clawback adoption across a firm's board interlock. I find that, in those firms with fewer pre-adoption independent directors, clawback adoption increases the wealthperformance sensitivity of unvested (long-term) compensation, while reduces the frequency of earnings manipulation. The results suggest that enforcement frictions are relevant, particularly for firms where managers face weak monitoring by shareholders.
