Skip to main content
University of Nebraska–Lincoln

Full Article

The Effect of Voluntary Clawback Adoptions on Corporate Tax Policy

Journal(s): The Accounting Review
Published: July 1, 2019
Author(s): Thomas R. Kubick, Thomas C. Omer, Zac Wiebe

General Description
Policies in place to retrieve money from executives who profited from financial misconduct, known as clawbacks, show a variance in levels of adoption by corporations. Research indicates that some organizations who have adopted these clawback policies shifted their strategies to decrease tax revenue, while other organizations showed hesitancy to adopt the policies due to lack of guidance from the U.S. Securities and Exchange Commission.

View Full Story

Academic Abstract
Companies are adopting executive compensation recoupment (“clawback”) policies to discourage aggressive financial reporting choices. Recent research suggests clawback policies encourage other means of meeting earnings expectations. We suggest that reducing income tax expense is a means of meeting earnings expectations. We find that effective tax rates are lower after clawback adoption due to increased investments in tax planning. We identify three tax planning activities that clawback companies invest in to lower effective tax rates: purchases of auditor-provided tax services, increased connections to other low-tax companies, and use of tax havens. We provide evidence that effective tax rate decreases do not result from use of opportunistic income tax accruals, and that decreases are stronger among companies that adopt robust clawback policies. Additional tests indicate lower tax outcome volatility and longer, more readable tax footnotes following clawback adoption. Our results suggest a positive spillover effect of clawback adoption on corporate tax policy.

Access Research Paper

Latest accountancy Research

Does Information about Gender Pay Matter to Investors? An Experimental Investigation
Journal(s): Accounting, Organizations and Society
Published: April 1, 2021
CoB Author(s): Ling L. Harris
Recruiting Dark Personalities for Earnings Management
Journal(s): Journal of Business Ethics
Published: March 2, 2021
CoB Author(s): Ling Lin Harris