The relationship between compensation committee quality and the voluntary adoption of clawback provisions
-
DOIhttp://dx.doi.org/10.21511/imfi.15(4).2018.28
-
Article InfoVolume 15 2018, Issue #4, pp. 345-355
- Cited by
- 812 Views
-
140 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This paper examines how compensation committee quality is related to the voluntary adoption of clawback provisions. Because fair value information has some reliability issues, this paper further examines whether the amount of Level 3 fair values affect the relationship between compensation committee quality and the voluntary adoption of clawback provisions. Using a sample drawn from the U.S. firms from 2008 to 2015, the results show that the compensation committee quality is positively related to the voluntary adoption of clawback provisions. Additionally, the positive relationship between compensation committee quality and the voluntary adoption of clawback provisions is more pronounced for firms with higher Level 3 fair values.
- Keywords
-
JEL Classification (Paper profile tab)G34, J33, M41
-
References47
-
Tables3
-
Figures0
-
- Table 1. Descriptive statistics
- Table 2. Correlation analysis
- Table 3. Model of clawback adoption
-
- Addy, N., Chu, X., & Yoder, T. (2014). Voluntary adoption of clawback provisions, corporate governance, and interlock effects. Journal of Accounting and Public Policy, 33(2), 167-189.
- Adut, D., Cready, W., & Lopez, T. (2003). Restructuring charges and CEO compensation: a reexamination. The Accounting Review, 78(1), 169-192.
- Altamuro, J., & Zhang, H. (2013). The financial reporting of fair value based on managerial inputs versus market inputs: evidence from mortgage servicing rights. Review of Accounting Studies, 18(3), 833-858.
- Barclay, M., Gode, D., & Kothari, S. (2005). Matching delivered performance. Journal of Contemporary Accounting & Economics, 1(1), 1-25.
- Barth, M. E., & Landsman, W. R. (1995). Fundamental issues related to using fair value accounting for financial reporting. Accounting Horizons, 9(4), 97-107.
- Barth, M. E., Landsman, W., & Lang, M. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46(3), 467-498.
- Bebchuk, L. A., & Fried, J. M. (2003). Executive compensation as an agency Problem. Journal of Economic Perspectives, 17(3), 71-92.
- Brown, A., Davis-Friday, P. Y., Guler, L., & Marquardt, C. (2015). M&A decisions and U.S. firms’ voluntary adoption of clawback provisions in executive compensation contracts. Journal of Business, Finance, and Accounting, 42(1-2), 237-271.
- Chan, L. H., Chen, K. C. W., & Chen, T. T. (2013). The effects of firm-initiated clawback provisions on bank loan contracting. Journal of Financial Economics, 110(3), 659-679.
- Chan, L. H., Chen, K. C. W., Chen, T. Y., & Yu, Y. (2015). Substitution between real and accruals-based earnings management after voluntary adoption of compensation clawback provisions. The Accounting Review, 90(1), 147-174.
- Chan, L. H., Chen, K. C. W., Chen, T. Y., & Yu, Y. (2012). The effects of firm-initiated clawback provisions on earnings quality and auditor behavior. Journal of Accounting and Economics, 54(2-3), 180-196.
- Chen, Y., & Vann, C. E. (2017). Clawback provision adoption, corporate governance, and investment decisions. Journal of Business Finance & Accounting, 44(9-10), 1370-1397.
- Chen, F., Kevin, L., Smieliauskas, W., & Ye, M. (2011). Fair value measurements and auditor versus management conservatism: evidence from the banking industry (Working Paper). University of Toronto.
- Collins, D., Gong, G., & Li, H. (2009). Corporate governance and backdating of executive stock options. Contemporary Accounting Research, 26(2), 403-445.
- Conyon, M. J., & Peck, S. I. (1998). Board control, remuneration committees, and top management compensation. Academy of Management Journal, 41, 146-157.
- Core, J., Gua, W., & Larcker, D. (2003). Executive equity compensation and incentives: A Survey. Economic Policy Review, 9, 27-50.
- Core, J., Gua, W., & Holthausen, R. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371-406.
- Daske, Q., Hail, L., Leuz, C., & Verdi, R. (2008). Mandatory IFRS reporting around the world: early evidence on the economic consequences. Journal of Accounting Research, 46(5), 1085-1142.
- Dechow, P. M., Myers, L., & Shakespeare, C. (2010). Fair value accounting and gains from asset securitizations: A convenient earnings management tool with compensation side-benefits. Journal of Accounting Economics, 49(1- 2), 2-25.
- Dechow, P. M., Huson, M. R., & Sloan, R. G. (1994). The effect of restructuring charges on executives’ cash compensation. The Accounting Review, 69(1), 138-156.
- Dehaan, E., Hodge, F. D., & Shevlin, T. J. (2013). Does voluntary adoption of a clawback provision improve financial reporting quality? Contemporary Accounting Research, 30(3), 1027-1062.
- Fiechter, P., & Meyer, C. (2011). Discretion in Fair Value Measurement of Banks During the 2008 Financial Crisis (Working paper). University of Zurich.
- Gaver, J. J., & Gaver, K. M. (1998). The relation between nonrecurring accounting transactions and CEO cash compensation. The Accounting Review, 73(2), 235-253.
- Goh, B. W., Ng, J., & Yong, K. O. (2011). Fair value disclosures beyond SFAS 157 (Working paper). Singapore Management University.
- Hennes, K. M., Leone, A. J., & Miller, B. P. (2008). The importance of distinguishing errors from irregularities in restatement research: The case of restatements and CEO/CFO turnover. The Accounting Review, 83(6), 1487-1519.
- Huang, S., Lim, C. Y., & Ng, J. (2015). Not clawing the hand that feeds you: The case of co-opted boards and clawbacks (Working Paper). Singapore Management University.
- Iskandar-Datta, M., & Jia, Y. (2013). Valuation consequences of clawback provisions. The Accounting Review, 88(1), 171-198.
- Kolev, K. (2009). Do investors perceive marking-to-model as marking-to-myth? early evidence from FAS 157 disclosure (Working Paper). NYU Stern School of Business.
- Landsman, W. R. (2007). Is Fair Value accounting information relevant and reliable? evidence from capital market research. Accounting and Business Research Special Issue: International Accounting Policy Forum, 37, 19-30.
- Laux, C., & Leuz, C. (2009). The crisis of fair value accounting: making sense of the recent debate. Accounting, Organizations and Society, 34(6-7), 826-834.
- 31. Leone, A. J, Wu, J. S., & Zimmerman, J. L. (2006). Asymmetric sensitivity of CEO Cash Compensation to Stock Returns. Journal Accounting Economics, 42(1-2), 167-192.
- Lev, B., & Zhou, N. (2009). Unintended consequence: fair value accounting informs on liquidity risk (Working paper). New York University.
- Liao, L., Kang, H., Morris, R. D., & Tang, Q. (2011). Information asymmetry of fair value accounting during the global financial crisis (Working paper). The University of New South Wales.
- Manchiraju, H., Hamlen, S., Kross, W., & Suk, I. (2016). Fair value gains and losses in derivatives and CEO compensation. Journal of Accounting, Auditing & Finance, 31(3), 311-338.
- Newman, H. A., & Mozes, H. A. (1999). Does the composition of the compensation committee influence CEO compensation practices? Financial Management, 28(3), 41-53.
- Paananen, M., Renders, A., & Shima, K. (2011). Management motivations for SFAS 157 reclassifications and the capital market consequences (Working paper). University of Hertfordshire.
- Penman, S. H. (2007). Financial reporting quality: Is fair value a plus or minus? Accounting and Business Research (Special Issue: International Accounting Policy Forum), 37(1), 33-34.
- Perry, T., & Zenner, M. (2001). Pay for Performance? Government regulation and the structure of compensation contracts. Journal of Financial Economics, 62(3), 453-488.
- Riedl, E., & Serafeim, G. (2011). Information risk and fair values: An examination of equity betas. Journal of Accounting Research, 49(4), 1083-1122.
- Ryan, S. G. (2008). Accounting in and for the subprime crisis. The Accounting Review, 83(6), 1605- 1638.
- Scott, M., & Seelig, S. (2010). Mandated clawbacks will create new tensions between executives and boards.
- Song, C., Thomas, W., & Yi, H. (2010). Value relevance of FAS No. 157 fair value hierarchy information and the impact of corporate governance mechanisms. The Accounting Review, 85(4), 1375-1410.
- Sun, J., & Cahan, S. (2009). The effect of compensation committee quality on the association between CEO cash compensation and accounting performance. Corporate Governance: An International Review, 17(2), 193-207.
- Sun, J., Cahan, S. F., & Emanuel, D. (2009). Compensation committee governance quality, Chief Executive Officer stock option grants and future firm performance. Journal of Banking and Finance, 33(8), 1507-1519.
- Vafeas, N. (2003). Further evidence on compensation committee composition as a determinant of CEO compensation. Financial Management, 32, 53-70.
- Valencia, A. (2011). Opportunistic behavior using Level 3 fair-values under SFAS157 (Unpublished Doctoral dissertation). The Florida State University.
- Watts, R. (2003). Conservatism in accounting part II: Evidence and research opportunities. Accounting Horizon, 17(4), 287-330.