Abstract
ABSTRACT The clawback provisions adoption has received increasing attention in recent studies. Based on US setting, several studies find that voluntary clawback provisions may impede corporate innovation. Exploiting a policy experiment that requires SOEs to adopt mandatory clawback provisions in China, we find that adopting mandatory clawback provisions enhances corporate innovation. The cross-sectional tests show that the effect is stronger in firms with more related party transactions and in firms with less institutional investors, suggesting that improving corporate governance is a plausible channel through which clawback provisions affect corporate innovation. Overall, our study indicates that mandatory clawback provisions may play an active role in countries with weak corporate governance.
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