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

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  • Nan Lin
  • Ruoyu Weng
  • Rui Fan

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.

Suggested Citation

  • Nan Lin & Ruoyu Weng & Rui Fan, 2023. "The Effect of Mandatory Clawback Provisions on Corporate Innovation: Quasi-Experimental Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(1), pages 265-280, January.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:1:p:265-280
    DOI: 10.1080/1540496X.2022.2147787
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