Clawback provision of SOX, financial misstatements, and CEO compensation structure

by Zheng, Kenneth, Ph.D., THE UNIVERSITY OF TEXAS AT DALLAS, 2011, 67 pages; 3474712


Section 304 of the Sarbanes-Oxley Act (hereafter, SOX), commonly referred to as the clawback provision, entitles the SEC to sue the CEO and CFO in an attempt to recover bonuses or equity compensation received based on misstated financial reports that are subsequently restated. This paper investigates the effects of the clawback provision on the likelihood of accounting misstatements and the CEO compensation structure. Efendi et al. (2007, JFE) document a positive association between CEO in-the-money stock option value and the likelihood of a financial misstatement They attribute this result to the agency costs of overvalued equity (Jensen, 2005). This association reduces significantly post SOX, consistent with the increase in the risk of clawback of CEO compensation due to financial misstatements. I also find that firms with high restatement likelihood exhibit a greater increase in CEO salary and a greater decrease in CEO option grants between the pre- and post-SOX periods, as compared to firms with low restatement likelihood. Finally, the above effects of the clawback provision on CEO compensation are greater for firms with weaker corporate governance.

AdviserAshiq Ali
Source TypeDissertation
SubjectsAccounting; Management
Publication Number3474712

About ProQuest Dissertations & Theses
With nearly 4 million records, the ProQuest Dissertations & Theses (PQDT) Global database is the most comprehensive collection of dissertations and theses in the world. It is the database of record for graduate research.

PQDT Global combines content from a range of the world's premier universities - from the Ivy League to the Russell Group. Of the nearly 4 million graduate works included in the database, ProQuest offers more than 2.5 million in full text formats. Of those, over 1.7 million are available in PDF format. More than 90,000 dissertations and theses are added to the database each year.

If you have questions, please feel free to visit the ProQuest Web site - - or contact ProQuest Support.