The Effects of Clawback Provisions on Investment Behaviour

Abstract

Clawback provisions are increasingly adopted into corporate compensation systems. So far, various effects on the behavior of managers are identified. Interestingly, unplanned and potentially dysfunctional effects of clawback provisions have been scarcely a topic in accounting research. This study investigates the effects of clawback provisions on investment behavior. In the first part of the study, a formal-analytical model is derived that describes the relationship between clawback provisions and investment behavior. The model is based on prospect theory of Kahneman und Tversky (1979). In the second part of the study two experiments with 205 participants are described, which were conducted using Amazon Mechanical Turk (MTurk). Consistent with the derived model, the results show that clawback provisions significantly affect investment behavior. The prerequisite for this is that a clawback clause influences the decision problem sufficiently. The study contributes to a better understanding of unplanned and potentially dysfunctional effects of clawback provisions. Moreover, the developed model provides a basis for further research on the topic.

Keywords: Clawback-Klauseln; Investitionsverhalten; Entscheidungsverhalten; Prospect-Theory.