THREE STUDIES ON EXECUTIVE COMPENSATION CLAWBACK PROVISIONS

Abstract

This dissertation contains three studies relating to executive compensation clawback policies. In the first study (Chapter 3), I investigate the relation between voluntary clawback adoption and shareholder satisfaction. I find that various measures of shareholder dissatisfaction are associated with an increased likelihood of initial clawback adoption and, for firms that already have one in place, an increased likelihood of clawback enhancement. When investigating the impact of clawbacks on shareholder dissatisfaction, measured with say-on-pay (SOP) voting dissent, I find voting dissent is reduced when clawbacks include a reporting-focused trigger. I also find partial evidence that clawbacks reduce SOP voting dissent associated with abnormal CEO compensation, suggesting that shareholders assign greater value to the clawback policy as the value of abnormal compensation increases. In Chapter 4, I examine the relation between earnings quality and variations in the features of clawback policies: the types of trigger events, the executives covered, the amount of compensation subject to clawback, and board discretion in clawback enforcement. The results suggest that earnings quality increases when clawbacks contain reporting-focused triggers and that more automatic clawbacks improve perceptions of reporting quality. In Chapter 5, I examine the relation between mandatory clawbacks, which are required for firms participating in the Troubled Asset Relief Program (TARP), and both observed earnings quality and perceptions of earnings quality. The findings suggest that mandatory clawbacks are associated with improvements in auditor’s perceptions of reporting quality. However, they are also associated with a greater likelihood of financial restatement, indicating that government mandated clawbacks may reduce the quality of earnings. The results of these studies may be of interest to regulators as they work towards the final rules governing mandatory clawbacks under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.