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Large Shareholders and CEO Performance-Based Pay: New Evidence from Privately-Held Firms

Huasheng Gao

Nanyang Technological University

Kai Li

University of British Columbia (UBC) - Sauder School of Business; China Academy of Financial Research (CAFR)

December 10, 2014

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. We first 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 weaker in privately-held firms. We then show that the above findings are robust to accounting for firms’ self-selection into being privately-held, and a number of differences between privately-held and public firms. Reconciling prior mixed evidence, we show that there is an overall negative relation between ownership concentration and CEO performance-based pay, while at the low end of ownership concentration, there is a positive relation between the two. We conclude that the presence of large shareholders generally substitutes for CEO performance-based compensation contracts, but becomes a complement in diffusely-held firms.

Number of Pages in PDF File: 57

Keywords: CEO pay; ownership concentration; pay-performance sensitivity; privately-held firms; public firms; shareholder monitoring

JEL Classification: G34

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Date posted: April 30, 2012 ; Last revised: January 13, 2015

Suggested Citation

Gao, Huasheng and Li, Kai, Large Shareholders and CEO Performance-Based Pay: New Evidence from Privately-Held Firms (December 10, 2014). Available at SSRN: http://ssrn.com/abstract=2047997 or http://dx.doi.org/10.2139/ssrn.2047997

Contact Information

Huasheng Gao (Contact Author)
Nanyang Technological University ( email )
S3 B2-A28 Nanyang Avenue
Singapore, 639798
HOME PAGE: http://www3.ntu.edu.sg/home/hsgao/
Kai Li
University of British Columbia (UBC) - Sauder School of Business ( email )
2053 Main Mall
Vancouver, BC V6T 1Z2
604-822-8353 (Phone)
604-822-4695 (Fax)
HOME PAGE: http://finance.sauder.ubc.ca/~kaili
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030

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