We obtain accounting restatement, material internal control weakness, audit fee, and audit report date data from Audit
Analytics, financial data from Compustat and CRSP, clawback provision data from Corporate Library, and corporate
governance data from Corporate Library, Execucomp, and Thomson Reuters.
Our initial sample consists of all companies listed in the Russell 3000 Index over the 2000 to 2009 period with available
data in Audit Analytics, Compustat, and CRSP. We exclude financial firms from the analysis as financial institutions that
received federal bailout funds during the financial crisis in 2008 and 2009 are subject to mandatory clawbacks enforced by
the Department of Treasury, whereas our goal is to examine the effect of firms’ voluntary initiation of clawback provisions.
After excluding financial firms and firms without financial data, our sample consists of 2,183 firms, of which 343 have
clawback provisions in place as of 2009. These 343 clawback adopters comprise our treatment sample. The remaining
1,840 firms do not have such provisions in place at any point during our sample period. These non-adopters comprise our
control sample. For the 343 clawback firms, we identify the year in which they initiated their clawback policy by searching
news announcements and the firms’ proxy statements.
Table 1, Panel A presents the yearly distribution of adoptions. As can be seen from the table, clawback provisions were
relatively rare (only 18 firms) in 2005. However, the number of firms with such provisions in place jumped to 83 in 2006,
and the practice became even more common during the financial crisis, with 90 and 99 new adopters in 2007 and 2008,
respectively. The total number of adopting firms continued to increase in 2009. As we note earlier, the rise in the number
of firms introducing clawback provisions in the post-2006 period could be due in part to the SEC’s new regulation
requiring disclosure of such provisions.
Panel B of Table 1 presents the industry distribution of clawback adopting firms. As can be seen from the table,
clawback adopters are spread fairly evenly across industries. This pattern supports the generalizability of our results.