TY - JOUR

T1 - Determinants and consequences of clawback provisions in management compensation contracts

T2 - a structured literature review on empirical evidence

AU - Velte, Patrick

N1 - Special Issue on Digital Transformation This publication was funded by the Open Access Publication Fund of Leuphana University Lüneburg. Publisher Copyright: © 2020, The Author(s).

PY - 2020/11/1

Y1 - 2020/11/1

N2 - The goal of this systematic literature review is to provide a detailed understanding of the determinants and consequences of clawback provisions in management compensation contracts, motivated by the increasing global regulatory, practical, and academic importance of implementing this new corporate governance tool. We identify 44 empirical (archival and experimental) studies on this topic and review them based on an agency-theoretical framework. Our review of empirical clawback research offers insights into this growing field and supports future researchers in developing new research questions. Our main results are as follows. First, we still know very little about the drivers of clawback adoption, as prior research concentrated on the consequences of clawback provisions. Second, many studies indicate that clawbacks lead to better earnings quality (reduced re-/misstatements), better pay-for-performance sensitivity, increased firm performance, greater value relevance, and lower overinvestment. While there are indications that clawbacks may serve an incentive-alignment function for managers, their contribution may be dependent on other corporate governance mechanisms, e.g. board composition, as significant moderators. We develop a research agenda with detailed recommendations for future research from methodological and content perspectives. We expect that the research activity in this field regarding the European capital market will increase in light of the EU shareholder rights Directive of 2017.

AB - The goal of this systematic literature review is to provide a detailed understanding of the determinants and consequences of clawback provisions in management compensation contracts, motivated by the increasing global regulatory, practical, and academic importance of implementing this new corporate governance tool. We identify 44 empirical (archival and experimental) studies on this topic and review them based on an agency-theoretical framework. Our review of empirical clawback research offers insights into this growing field and supports future researchers in developing new research questions. Our main results are as follows. First, we still know very little about the drivers of clawback adoption, as prior research concentrated on the consequences of clawback provisions. Second, many studies indicate that clawbacks lead to better earnings quality (reduced re-/misstatements), better pay-for-performance sensitivity, increased firm performance, greater value relevance, and lower overinvestment. While there are indications that clawbacks may serve an incentive-alignment function for managers, their contribution may be dependent on other corporate governance mechanisms, e.g. board composition, as significant moderators. We develop a research agenda with detailed recommendations for future research from methodological and content perspectives. We expect that the research activity in this field regarding the European capital market will increase in light of the EU shareholder rights Directive of 2017.

KW - Management studies

KW - board composition

KW - Management compensation

KW - financial restatements

KW - earnings management

KW - clawbacks

KW - principal agent theory

UR - http://www.scopus.com/inward/record.url?scp=85098147087&partnerID=8YFLogxK

UR - https://www.mendeley.com/catalogue/72be6d8e-28de-31bf-aab5-48de47cd0200/

U2 - 10.1007/s40685-020-00135-9

DO - 10.1007/s40685-020-00135-9

M3 - Scientific review articles

VL - 13

SP - 1417

EP - 1450

JO - Business Research

JF - Business Research

SN - 2198-2627

IS - 3

ER -