Gallery

Jeong Hwan Joo
The University of Hong Kong

Abstract:

We present evidence that clawback provision adoptions influence capital investment mix and efficiency consistent with managerial compensation incentives. Specifically, using a propensity-matched sample of 346 voluntary clawback adoptions, we find that for firms with higher proportions of performance-linked annual pay, capital investments shift away from R&D and toward capital expenditures. For firms with higher levels of equity incentives, clawback adoptions increase capital expenditures without significant R&D reductions consistent with longer-term share-value incentives. Further evidence indicates that clawback adoptions motivate capital over-investment and reduce capital investment efficiency. This evidence is timely given a pending SEC rule that would mandate clawback provisions for all firms listing on US exchanges.

Language: English