CEO Compensation, Family Control and Institutional Investors in Continental Europe
Universita' Cattolica del Sacro Cuore, Milano
University of Groningen - Faculty of Economics and Business
University of Bristol - School of Economics, Finance and Management, UK
October 21, 2010
Paris December 2010 Finance Meeting EUROFIDAI - AFFI
Midwest Finance Association 2012 Annual Meetings Paper
This paper investigates the impact of family control and institutional investors on CEO pay packages in Continental Europe, using a large data set of 915 listed firms with 4,045 firm-year observations from 14 countries over the period 2001-2008. We find that family control curbs the level of CEO total compensation which includes both cash and equity-based compensation. This effect is particularly accentuated in firms with family CEOs, indicating that controlling families do not use CEO compensation to expropriate wealth from minority shareholders. We also find that the impact of institutional ownership on CEO compensation varies depending on whether institutional investors are foreign or domestic. Our results show that domestic institutional investors play an active role in determining the level of CEO compensation by increasing the pay-for-performance sensitivity, while foreign institutional ownership increase CEO total compensation without aligning pay with performance. We also provide evidence that institutional investors partially counterbalance the negative effect of family control on CEO compensation, especially in family firms with professional CEOs, and increase the level of CEO total compensation.
Number of Pages in PDF File: 44
Keywords: CEO Compensation, Family Firms, Institutional Investors, Europe
JEL Classification: G34
Date posted: October 23, 2010 ; Last revised: September 19, 2011
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