Firm-initiated clawback provisions and audit committee quality

• In Event: Financial Accounting and Reporting 2

Abstract

Firm-initiated clawback provisions and audit committee quality

Henry Mburu
Morgan state university
Doctoral student in accounting
Bilal Makkawi
Morgan state university
Associate professor of Accounting

Sheela Thiruvadi
Morgan state university
Associate professor of Accounting

We examine the characteristics of the audit committee for firms that voluntarily adopt clawback provisions in executive contracts. We use a sample of 393 S&P 600 firms consisting of 223 clawback adopters and 170 control firms. Results indicated that audit committees of clawback firms meet more often, are larger, and have larger proportion of female directors compared to non-clawback firms. Furthermore, clawback firms are larger, more levered, less likely to be in ligitious industries, and are more likely to be audited by a BIG 6 auditor. In addition, Chief Executive Officers of firms with clawbacks have significantly higher total compensation and hold less stock than those of firms without clawbacks. Overall, we find empirical evidence that firms with clawback provisions have higher quality audit committee (as measured by the number of meetings, number of directors, and proportion of female directors) than firms that have not adopted clawback provisions. The audit committee meetings and CEO compensation were more significant for firms with both clawback provisions and golden parachutes.

Authors

• Henry Mburu, Morgan State University

• Bilal Makkawi, Morgan State University

• Sheela Thiruvadi, Morgan State University