Ownership Concentration and CEO Pay-Performance Sensitivity: New Evidence from Privately-Held Firms
Nanyang Technological University
University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)
October 2, 2013
In this paper we study CEO contract design employing a unique dataset on privately-held and public firm CEO annual compensation over the period 1999-2011. Compared to public firms, privately-held firms have less diffuse ownership and hence stronger shareholder monitoring. We show that both private and public firm CEO pay is positively and significantly related to firm accounting performance, and that the pay-performance link is much stronger in public firms. Further, in a cross-section of both privately-held and public firms, CEO pay-performance sensitivity first increases and then declines as the level of ownership concentration rises. Our main findings are robust to accounting for firms’ self-selection into different ownership structures and to different measures of firm accounting performance. We conclude that there is a complex inverted-U shaped relation between ownership concentration and CEO performance-based pay.
Number of Pages in PDF File: 47
Keywords: CEO pay, ownership concentration, pay-performance sensitivity, privately-held firms, public firms, self-selection, shareholder monitoring
JEL Classification: G34working papers series
Date posted: April 30, 2012 ; Last revised: October 26, 2013
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