We develop a Clawback Strength Index and show that while some firms adopt unambiguous and strong clawback provisions, others adopt weak ones. We find that strong clawback adopters experience improvements in financial reporting quality, fewer CEO turnovers, and lower CEO pay. We advance two possible explanations: First, clawback strength may be primarily responsible for the improvements in reporting quality. Second, strong clawbacks may yield benefits because they are part of a broader reform package. While our findings on reporting quality and CEO turnover are consistent with both explanations, our results on CEO pay support only the broader reform explanation.

Statutory tax rates of a country do not reflect a country's true tax competitiveness, we propose and show that government debt to GDP ratio (GOVDEBT) of a country is a better proxy for its tax competitiveness. Using a comprehensive sample of 1,884 completed cross-border acquisition transactions from the U.S. to other OECD countries, we document that the U.S.target country GOVDEBT difference is significantly and positively related to both deal announcement return and post-deal tax saving of the acquirer. The GOVDEBT difference is also significantly and positively related to U.S.-target country deal flow. The findings remain robust when we control for the potential endogeneity of GOVDEBT difference. Our findings strongly suggest that tax avoidance is an important driver of U.S.-OECD cross-border deal flow and it increases shareholder wealth for U.S. acquirers. "It's a rock-solid fact that the U.S. corporate statutory tax rate is the highest among developed nations and is significantly higher than the average. …… There is, however, an unsettled debate over whether and by how much the U.S. corporate effective tax rate is higher than effective tax rates outside the United States. Effective tax rates seek to measure how much businesses really pay after all deductions and credits are considered."

We investigate the degree to which implementing a clawback policy, a special part of the executive's compensation contract, is an adequate governance mechanism to deter executives from misbehavior and to recover excess-pay. By focusing on the firm-level heterogeneity in the structure of clawbacks, we recognize that firms have considerable discretion in how they design their policies. We find that firms make heavily use of their discretion in adopting more or less deterrent policies and that most firms have weak clawback provisions. We analyze voluntary adopted clawbacks of all Russell 3,000 non-financial firms over 2007-2012. We conduct an extensive linguistic and a factor analysis to construct a deterrent index for 3,578 clawback observations. This index reflects the degree to which the contractual form of each clawback contains the core elements of a deterrent clawback policy. Our results, which also take into account the self-selection problem of voluntarily adopting a clawback, show that executive power, the executives' pay level, and weak corporate governance are associated with a low deterrent level. We also find that the deterrent level increases in directors' experience, corporate profitability and management ownership. Keywords: clawback provisions, excess pay, corporate governance, linguistic analysis JEL codes: G18, G30, G34, G39, K22, K29 Firm-Level Heterogeneity of Clawback Provisions AbstractWe investigate the degree to which implementing a clawback policy, a special part of the executive's compensation contract, is an adequate governance mechanism to deter executives from misbehavior and to recover excess-pay. By focusing on the firm-level heterogeneity in the structure of clawbacks, we recognize that firms have considerable discretion in how they design their policies. We find that firms make heavily use of their discretion in adopting more or less deterrent policies and that most firms have weak clawback provisions. We analyze voluntary adopted clawbacks of all Russell 3,000 non-financial firms over 2007-2012. We conduct an extensive linguistic and a factor analysis to construct a deterrent index for 3,578 clawback observations. This index reflects the degree to which the contractual form of each clawback contains the core elements of a deterrent clawback policy. Our results, which also take into account the self-selection problem of voluntarily adopting a clawback, show that executive power, the executives' pay level, and weak corporate governance are associated with a low deterrent level. We also find that the deterrent level increases in directors' experience, corporate profitability and management ownership.

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