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Finance and Financial Management

Risk management

Marquette University

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Compensation Clawback Policies And Corporate Lawsuits, Matteo Arena, Nga Nguyen Jan 2019

Compensation Clawback Policies And Corporate Lawsuits, Matteo Arena, Nga Nguyen

Finance Faculty Research and Publications

Purpose

The purpose of this paper is to study the relation between compensation clawbacks and lawsuits and analyze how these two corporate disciplinary forces interact. This paper hypothesizes that by allowing firms to recoup compensation from managers who breach their fiduciary duty, clawbacks provide a form of discipline that potentially reduces the likelihood of managerial wrongdoing, which, in turn, lowers the risk of corporate lawsuits.

Design/methodology/approach

This paper identifies whether or not a company in the S&P 1500 had a clawback policy between 2007 and 2014 by searching the company filings and press releases. The authors also construct different proxies …