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

Christopher P. Clifford

University of Kentucky

Laura Anne Lindsey

Arizona State University (ASU) - Finance Department

Date Written: August 25, 2011

Abstract

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

Clifford, Christopher P. and Lindsey, Laura Anne, Blockholder Heterogeneity, CEO Compensation, and Firm Performance (August 25, 2011). 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. Available at SSRN: https://ssrn.com/abstract=1644995 or http://dx.doi.org/10.2139/ssrn.1644995

Christopher P. Clifford

University of Kentucky ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States
859-257-3850 (Phone)

Laura Anne Lindsey (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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