Ownership Concentration and Executive Compensation in Closely Held Firms: Evidence from Hong Kong

HKIMR Working Paper No. 14/2003

53 Pages Posted: 27 Aug 2007

See all articles by Aris Stouraitis

Aris Stouraitis

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Anita Wong

affiliation not provided to SSRN

Stephen Yan-Leung Cheung

City University of Hong Kong (CityUHK) - Department of Economics & Finance

Date Written: July 2003

Abstract

Owners-managers of closely held firms effectively decide on the level of their own compensation. We test the relationship between ownership concentration and executive compensation, using panel data for a sample of 412 Hong Kong firms during 1995-1998. We find a positive relationship between managerial ownership and top executive cash emoluments for levels of ownership of up to 25 percent in small and in family controlled firms, and for up to 5 percent in large firms. We also find no sensitivity of pay to performance in small firms. These findings may indicate that in the presence of information asymmetry between owners-managers and outside investors the former may use their ownership rights to extract higher salaries for themselves. There is also evidence that top executives with larger shareholdings may be using dividends as a way to supplement their cash salaries. Further tests show that the observed relationships do not result from a link between compensation, performance, managerial effort, and managerial ownership. With the exception of boards of directors having an auditing committee, we find that boards cannot prevent this form of expropriation.

Keywords: ownership structure, executive compensation, corporate governance

Suggested Citation

Stouraitis, Aristotelis and Wong, Anita and Cheung, Stephen Yan-Leung, Ownership Concentration and Executive Compensation in Closely Held Firms: Evidence from Hong Kong (July 2003). HKIMR Working Paper No. 14/2003, Available at SSRN: https://ssrn.com/abstract=1009149 or http://dx.doi.org/10.2139/ssrn.1009149

Aristotelis Stouraitis

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

Anita Wong

affiliation not provided to SSRN ( email )

No Address Available

Stephen Yan-Leung Cheung (Contact Author)

City University of Hong Kong (CityUHK) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
+852 2788 7960 (Phone)
+852 2788 8806 (Fax)

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