Title: Relationships among corporate governance mechanisms: evidence based on executive compensation clawback provisions

Authors: Yu Chen; Carol E. Vann

Addresses: A.R. Sanchez, Jr. School of Business, WHTC 218D, Texas A&M International University, 5201 University Boulevard, Laredo, Texas 78041, USA ' Mitchell College of Business, MLRC 127, University of South Alabama, 5811 USA Drive South, Mobile, AL 36688, USA

Abstract: This study examines the relationships between executive compensation clawback provisions and other major corporate governance mechanisms, including both internal corporate governance and external corporate governance, and whether clawback provisions enhance a firms financial performance. Using a sample of S&P 1500 firms over the period of 2005 through 2009, our results show that clawback provisions are complements to firms' existing internal governance measures and are substitutes to external corporate governance measures. We also employ the propensity-score matching technique and the difference-in-differences research design, and find that clawback firms have higher ROE and ROA. Our evidence is consistent with agency theory, but inconsistent with stewardship theory. We conclude that corporate governance mechanisms are interrelated in significant and meaningful ways, and that ignoring the interactions among different governance mechanisms likely leads to misleading results. We argue that our empirical evidence should be taken into consideration for policy-making and for future corporate governance studies.

Keywords: corporate governance; clawback provisions; agency theory; stewardship theory; executive compensation; firm performance; financial performance; compensation clawback.

DOI: 10.1504/IJCG.2014.064736

International Journal of Corporate Governance, 2014 Vol.5 No.3/4, pp.223 - 244

Received: 18 Feb 2014
Accepted: 06 May 2014
Published online: 30 Apr 2015 *

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