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M&A Decisions and US Firms' Voluntary Adoption of Clawback Provisions in Executive Compensation Contracts.
- Source :
- Journal of Business Finance & Accounting; Jan/Feb2015, Vol. 42 Issue 1/2, p237-271, 35p
- Publication Year :
- 2015
-
Abstract
- We examine whether US firms' M&A decisions influence the likelihood of voluntary adoption of clawback provisions in executive compensation contracts and whether clawback adoption improves subsequent M&A decisions. Because prior research finds that poor M&A decisions are associated with future earnings restatements, we predict that clawback adoption is more likely after these transactions. We further conjecture that M&A decisions will improve after clawback adoption, as its presence reduces executives' willingness to manipulate post-acquisition earnings. Consistent with our expectations, we find that (1) firms with more negative M&A announcement returns are more likely to adopt clawbacks; (2) firms that acquire targets with relatively poor accounting quality are more likely to adopt clawbacks; (3) clawbacks improve investor perception of M&A quality; and (4) executives are more responsive to the market when completing M&A deals if their compensation contracts include clawbacks. These results suggest that boards take a pro-active approach and consider factors that may lead to restatements when adopting clawbacks. Our results have implications for US policymakers, as the Dodd-Frank Act of 2010 requires mandatory adoption of clawbacks. Our results also suggest that non-US firms can reduce managerial incentives to manipulate post-takeover earnings by using clawbacks. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 0306686X
- Volume :
- 42
- Issue :
- 1/2
- Database :
- Complementary Index
- Journal :
- Journal of Business Finance & Accounting
- Publication Type :
- Academic Journal
- Accession number :
- 101158192
- Full Text :
- https://doi.org/10.1111/jbfa.12111