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Mandatory clawback provisions, information disclosure, and the regulation of securities markets

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  • Denis, Diane K.

Abstract

Chan et al. (2012) find that voluntary adoption of compensation clawback provisions is followed by fewer financial restatements and fewer auditor reports of material internal control weaknesses, higher earnings response coefficients, and reduced auditing fees and lags. They conclude that voluntary adoption of clawback provisions leads to increased financial integrity. Based on these findings they suggest that U.S. government mandated clawback provisions will be effective in reducing material financial misstatements. I offer possible alternative interpretations of CCCY’s results and discuss issues surrounding government regulation of clawback provisions in particular and corporate behavior more generally.

Suggested Citation

  • Denis, Diane K., 2012. "Mandatory clawback provisions, information disclosure, and the regulation of securities markets," Journal of Accounting and Economics, Elsevier, vol. 54(2), pages 197-200.
    • Handle: RePEc:eee:jaecon:v:54:y:2012:i:2:p:197-200
    DOI: 10.1016/j.jacceco.2012.07.002
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    References listed on IDEAS

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    1. Renee B. Adams & Benjamin E. Hermalin & Michael S. Weisbach, 2010. "The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 58-107, March.
    2. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    3. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    4. Chan, Lilian H. & Chen, Kevin C.W. & Chen, Tai-Yuan & Yu, Yangxin, 2012. "The effects of firm-initiated clawback provisions on earnings quality and auditor behavior," Journal of Accounting and Economics, Elsevier, vol. 54(2), pages 180-196.
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    Citations

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    Cited by:

    1. Ilona Babenko & Benjamin Bennett & John M Bizjak & Jeffrey L Coles & Jason J Sandvik, 2023. "Clawback Provisions and Firm Risk," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 12(2), pages 191-239.
    2. Cha, Yunshil & Gill, Susan & Wong-On-Wing, Bernard, 2023. "Clawback policy enforcement: To disclose or not to disclose," Advances in accounting, Elsevier, vol. 62(C).
    3. Biddle, Gary C. & Chan, Lilian H. & Joo, Jeong Hwan, 2024. "Clawback adoptions, managerial compensation incentives, capital investment mix and efficiency," Journal of Corporate Finance, Elsevier, vol. 84(C).
    4. Kyung, Hangsoo & Lee, Hakyin & Marquardt, Carol, 2019. "The effect of voluntary clawback adoption on non-GAAP reporting," Journal of Accounting and Economics, Elsevier, vol. 67(1), pages 175-201.
    5. Wenxia Ge & Jeong‐Bon Kim, 2020. "How does the executive pay gap influence audit fees? The roles of R&D investment and institutional ownership," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(5-6), pages 677-707, May.
    6. George D. Cashman & David M. Harrison & Christine A. Panasian, 2016. "Clawback Provisions In Real Estate Investment Trusts," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(1), pages 87-114, March.
    7. Erkens, Michael H.R. & Gan, Ying & Yurtoglu, B. Burcin, 2018. "Not all clawbacks are the same: Consequences of strong versus weak clawback provisions," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 291-317.
    8. Chan, Lilian H. & Chen, Kevin C.W. & Chen, Tai-Yuan, 2013. "The effects of firm-initiated clawback provisions on bank loan contracting," Journal of Financial Economics, Elsevier, vol. 110(3), pages 659-679.
    9. Patrick Velte, 2020. "Determinants and consequences of clawback provisions in management compensation contracts: a structured literature review on empirical evidence," Business Research, Springer;German Academic Association for Business Research, vol. 13(3), pages 1417-1450, November.
    10. Dina El Mahdy, 2020. "The unintended consequences of voluntary adoption of clawback provisions on managerial ability," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3493-3526, December.
    11. Mark A. Chen & Daniel T. Greene & James E. Owers, 2015. "The Costs and Benefits of Clawback Provisions in CEO Compensation," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 4(1), pages 108-154.
    12. Mburu, Henry Kimani & Tang, Alex P., 2018. "The adoption of voluntary clawback provisions and the broader commitment hypothesis," Advances in accounting, Elsevier, vol. 43(C), pages 60-69.
    13. Kiridaran Kanagaretnam & Stuart Mestelman & S. M. Khalid Nainar & Mohamed Shehata, 2013. "Transparency, Empowerment, Disempowerment and Trust in an Investment Environment," Department of Economics Working Papers 2013-09, McMaster University, revised Oct 2013.

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