Voluntary Clawback Adoption and Analyst Following, Forecast Accuracy, and Bias

Adoption of voluntary clawback provisions has been on the increase since 2002 with the passage of the Sarbanes-Oxley Act. Existing studies, in general, have documented positive outcomes associated with the adoption. Most of these studies examine the adoption from the angles of financial reporting risk and compensation, with a few exceptions. We, on the other hand, study the adoption from financial analysts' point of view who tend to be the most important users of financial reports. We use a one-to-one propensity score matching sample of firms that voluntarily adopt restatement triggered clawback provisions and similar non-adopters. In particular, we examine financial analyst following, financial analyst forecast accuracy, and financial analyst forecast optimistic bias. We find that firms that adopt clawback provisions are followed by more financial analysts. We also find that financial analysts provide more accurate forecasts, and with less optimistic bias. Collectively, our results suggest that the adoption of clawback provisions is associated with meaningful effect among financial analysts