{"title":"Clawback enforcement, executive pay, and accounting manipulation","authors":"Alvaro Remesal","doi":"10.1007/s10657-024-09801-3","DOIUrl":null,"url":null,"abstract":"<p>Clawback provisions entitle shareholders to recover previously-awarded compensation from managers involved in accounting manipulation or misconduct. In a principal-agent model, we show that strong clawback enforcement tilts managerial compensation towards the short-term but may increase manipulation. In contrast, weak enforcement alleviates the shareholders’ incentives to tilt compensation towards the short-term and reduces manipulation. While weak enforcement and lack of commitment may generate a time inconsistency problem, the clawback adoption decision may foster further governance changes that elicit ex post enforcement. We discuss the regulatory implications of the theory and its consistency with results in empirical studies.</p>","PeriodicalId":51664,"journal":{"name":"European Journal of Law and Economics","volume":"29 1","pages":""},"PeriodicalIF":1.0000,"publicationDate":"2024-04-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"European Journal of Law and Economics","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1007/s10657-024-09801-3","RegionNum":3,"RegionCategory":"社会学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q3","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
Clawback provisions entitle shareholders to recover previously-awarded compensation from managers involved in accounting manipulation or misconduct. In a principal-agent model, we show that strong clawback enforcement tilts managerial compensation towards the short-term but may increase manipulation. In contrast, weak enforcement alleviates the shareholders’ incentives to tilt compensation towards the short-term and reduces manipulation. While weak enforcement and lack of commitment may generate a time inconsistency problem, the clawback adoption decision may foster further governance changes that elicit ex post enforcement. We discuss the regulatory implications of the theory and its consistency with results in empirical studies.
期刊介绍：
The European Journal of Law and Economics provides readers with high-quality theoretical and empirical research in which both the legal and economic dimensions merge and combine. The journal welcomes articles that promote a better understanding of legal phenomena, legal decisions made by judges, courts or regulatory agencies, and involving economic tools. Theoretical papers are welcome, provided they have a strong basis in law and economics. We also welcome case studies, as well as empirical analyses – including empirical legal studies – and experimental investigations. The European Journal of Law and Economics does not favor any particular topic, but does have a focus on new and emerging problems. European themes are particularly welcome, because we feel it is important to exploit Europe’s considerable institutional diversity in order to build a more robust body of theory and empirical evidence. However, the purpose of the journal is also to showcase the diversity of law and economics approaches, as supplied by an international mix of authors. Drawing on the support of respected scholars from around the world, who serve as consulting editors and editorial board members, the Editors wish to give contributing authors the opportunity to improve their papers, while also offering them a quick and efficient review process.
Officially cited as: Eur J Law Econ
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