Why do Restatements Decrease in a Clawback Environment? An Investigation into Financial Reporting Executives' Decision-Making during the Restatement Process

ABSTRACT

Prior archival studies find that firms that voluntarily adopted clawback policies have experienced a reduction in restatements. I experimentally examine this outcome by investigating the influence of two key factors (i.e., executive compensation structure and auditor quality) on financial reporting executives' (hereafter, “executives”) decision-making regarding a proposed restatement that will lead to a clawback of their incentives. I find that executives ...more