Do Clawback Adoptions Influence Capital Investments?

Abstract

We present evidence that clawback provision adoptions influence capital investment mix via managerial compensation incentives. Specifically, we find for a propensity-matched sample of 931 voluntary clawback adoptions that capital investments shift away from R&D and toward capital expenditures, and for firms with enabling liquidity toward acquisitions, consistent with clawback effects on earnings-linked compensation. Corroborating evidence confirms that these effects are positively related to performance-based pay, growth opportunities, and invariant to risk-toleration incentives, with firms adopting clawbacks also exhibiting capital over-investment. This evidence is timely given a pending SEC rule that would mandate clawbacks for all firms listing on US exchanges.