Blockholder Heterogeneity, CEO Compensation, and Firm Performance
JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS Vol. 51, No. 5, Oct. 2016, pp. 1491–1520 COPYRIGHT 2016, MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON, SEATTLE, WA 98195 doi:10.1017/S0022109016000624
55 Pages Posted: 19 Jul 2010 Last revised: 10 Jan 2017
Date Written: August 25, 2011
This paper examines heterogeneity in blockholder monitoring across investor type. We document which blockholder types (e.g. mutual funds, hedge funds) are more likely to be associated with active monitoring and show that firms targeted by such blockholders are more likely to increase the equity portion of Chief Executive Officer (CEO) pay. Further, using market-wide and exogenous shocks to liquidity to identify differences in efficacy across blockholder types, we observe greater operating performance improvements in actively monitored firms when passive monitoring is less effective, suggesting causal impact. We propose differences in compensation arrangements across blockholder types as a mechanism underlying blockholders’ heterogeneous role.
Keywords: Blockholders, compensation, activism, monitoring, corporate governance
JEL Classification: G20, G30
Suggested Citation: Suggested Citation