Abstract:We examine whether US firms' M&A decisions influence the likelihood of voluntary adoption of clawback provisions in executive compensation contracts and whether clawback adoption improves subsequent M&A decisions. Because prior research finds that poor M&A decisions are associated with future earnings restatements, we predict that clawback adoption is more likely after these transactions. We further conjecture that M&A decisions will improve after clawback adoption, as its presence reduces executives' willingness to manipulate post-acquisition earnings. Consistent with our expectations, we find that (1) firms with more negative M&A announcement returns are more likely to adopt clawbacks; (2) firms that acquire targets with relatively poor accounting quality are more likely to adopt clawbacks; (3) clawbacks improve investor perception of M&A quality; and (4) executives are more responsive to the market when completing M&A deals if their compensation contracts include clawbacks. These results suggest that boards take a pro-active approach and consider factors that may lead to restatements when adopting clawbacks. Our results have implications for US policymakers, as the Dodd-Frank Act of 2010 requires mandatory adoption of clawbacks. Our results also suggest that non-US firms can reduce managerial incentives to manipulate post-takeover earnings by using clawbacks.

Institutional differences between countries result in additional information risks between borrowers and lenders in cross-border private loans. This study examines the effect of these information risks on the structure of optimal debt contracts in international (cross-border) versus domestic private debt markets. Using mandatory IFRS adoption as an indicator for institutional changes that reduced differences between countries, I compare attributes of international versus domestic loans before and after IFRS adoption. I find that, in the pre-IFRS period, international loans are associated with a higher credit spread, a weaker relationship between the bank and the borrower, a more diffuse loan syndicate, and less reliance on accounting-based covenants * Jon M. Huntsman School of Business, Utah State University.Accepted by Christian Leuz. This paper is based on my dissertation from Baruch College, City University of New York. I am especially grateful to an anonymous reviewer and my dissertation co-chairs, Donal Byard and Carol Marquardt, for many helpful comments and suggestions. I would like to thank workshop participants at the College of William and Mary, Concordia University, Idaho State University, and Utah State University for their helpful comments and suggestions. All errors are my own. An online appendix to this paper can be downloaded at http://research. chicagobooth.edu/arc/journal-of-accounting-research/online-supplements. 679Copyright C , University of Chicago on behalf of the Accounting Research Center, 2016 680 A. B. BROWN than domestic loans. These results are consistent with incremental information risks in international debt markets that make it more costly for lenders to screen and monitor borrower credit quality, resulting in a more arm's-length relationship between borrowers and lenders. Many of these associations attenuate after IFRS adoption, suggesting that the pre-IFRS differences in contract terms are driven by incremental information risks related to institutional differences between countries. My findings imply that incremental information risks result in a different optimal contract in international debt contracts compared to domestic debt contracts. JEL codes: D86; F34; G15; M41

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Eventually the Dodd-Frank Act of 2010 will require all publicly traded companies to implement clawback provisions. In the interim, some firms have chosen to implement the provisions voluntarily. Using the population of S&P 1500 firms over the period 2005-2009, we investigate the characteristics of firms that voluntarily adopt clawback provisions and those that do not. Since it is not clear whether clawback provisions are complements to or substitutes for strong corporate governance, we do not have any directional expectations regarding the relation between firms' corporate governance characteristics and their adoption of clawback provisions. However, we expect that there are firm-specific incentives, like restated financial statements and significant bonuses for mergers & acquisitions, for adopting clawback provisions. Our results indicate that the size of the firm is one of the strongest determinants of the decision to voluntarily adopt a clawback provision. Additionally, an influential CEO reduces the likelihood that a firm will adopt a clawback provision. Furthermore, even more than restatements, extraordinary M&A bonuses and goodwill impairments significantly increase the likelihood that firms adopt clawback provisions. Finally, examining the content of contractual language surrounding voluntarily adopted clawback provisions, we find that only restatements resulting from irregularities are significantly related to the likelihood of adopting fraud-based clawback provisions. The results from our analyses have implications for policymakers as they attempt to regulate the ability of executives to extract rents from shareholders through the provisions of the Dodd-Frank Act.