Do Concentrated Institutional Investors Really Reduce Executive Compensation Whilst Raising Incentives?
36 Pages Posted: 26 Mar 2008 Last revised: 6 Jul 2012
Date Written: February 2, 2012
Hartzell and Starks (2003) (HS) report that more concentrated institutional investing associates with higher pay-for-performance sensitivity and lower CEO pay. We find that institutional concentration has no effect on pay-for-performance sensitivity and increases compensation when we replicate their analysis using the logarithm of firm size instead of HS’ raw firm size as control. Moreover, HS results are sensitive to measuring concentration among institutions rather than concentration among shareholders. Finally, the HS concentration definition also appears to exacerbate firm-size effects. Overall, HS results may be primarily due to what appear to be weak firm-size controls and not due to institutional monitoring.
Keywords: Executive compensation, Monitoring, Institutional ownership, Principal-agent, Incentives
JEL Classification: G23, G32, G34, J33
Suggested Citation: Suggested Citation