The effects of firm-initiated clawback provisions on earnings quality and auditor behavior
AbstractWhile firm-initiated compensation recovery (or clawback) provisions are gaining popularity and the recently enacted Dodd-Frank Act seeks to make the clawback of erroneously awarded compensation mandatory for all listed companies, little is known about their effectiveness. We find that the incidence of accounting restatements declines after firms initiate such provisions. In addition, we show that investors and auditors view such provisions as associated with increased accounting quality and lower audit risk. Specifically, we find that firms' earnings response coefficients increase after the adoption of clawback provisions. Further, for firms that adopt clawbacks, auditors are less likely to report material internal control weaknesses, charge lower audit fees, and issue audit reports with a shorter lag.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Accounting and Economics.
Volume (Year): 54 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/jae
Clawbacks; Accounting restatements; The Dodd-Frank Act; Audit risk; Audit fees;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
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