The Value Implications of Mandatory Clawback Provisions

Authors

Tor-Erik BakkeFollow
Hamed MahmudiFollow
Aazam ViraniFollow

Start Page

627

Abstract

We find evidence suggesting that mandatory clawback provisions are value enhancing. We examine the stock market reaction to the US Security and Exchange Commission’s announcement of a proposed rule to make clawback provisions mandatory. The proposed rule was significantly stronger than existing clawback provisions that many firms had voluntarily adopted. We find that firms without clawback provisions exhibited positive abnormal returns of .6 percent around the announcement of the proposed rule. Firms with clawback provisions did not
exhibit statistically significant abnormal returns around the announcement. The returns following the announcement are most positive for firms without clawbacks that have more powerful management.

Recommended Citation

Bakke, Tor-Erik; Mahmudi, Hamed; and Virani, Aazam (2025) "The Value Implications of Mandatory Clawback Provisions," Journal of Law and Economics: Vol. 68: No. 3, Article 5.
Available at: https://chicagounbound.uchicago.edu/jle/vol68/iss3/5