[Research Seminar 2018.06.29]Do Clawback Adoptions Influence Capital Investment Mix?Speaker : Jeong Hwan Joo
Jeong Hwan Joo
The University of Hong Kong
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.