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Clawback adoptions and institutional investment decisions

Author

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

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.

Suggested Citation

  • Cheung, Kwok Tong Samuel & Fung, Simon Yu Kit & Raman, K.K. & Shen, Jianfu, 2025. "Clawback adoptions and institutional investment decisions," Journal of Corporate Finance, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:corfin:v:91:y:2025:i:c:s0929119925000112
    DOI: 10.1016/j.jcorpfin.2025.102743
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    More about this item

    Keywords

    Executive compensation recovery (clawback); Institutional investors; Transient/dedicated institutions; Information asymmetry; Long-term orientation;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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