The impact of voluntary adoption of clawback provisions on the risk-taking behavior of financial institutions
Date
2016
Authors
Zhang, Ying
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Abstract
In this study, we use a sample of 228 financial firms over the period of 2007-2012 to examine the impact of voluntary adoption of clawback provisions on these firms’ risk-taking behavior. We find that financial firms exhibit a significant reduction in risk after adopting clawback provisions. The financial firms also exhibit a significant decrease in the volatility of ROE, total return risk and idiosyncratic risk. The reduction in risk is mainly driven by the improvement in the volatility of return on assets and subsample of banks and brokers. In addition, we find that financial firms are less likely to adopt clawback provisions with higher management and director ownership, more insiders on the board, and whose CEO is not the chairman of the board.
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Keywords
Financial institutions, Voluntary, Risk-taking behavior, Clawback provisions