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Institutional Ownership and Executive Compensation: Evidence from U.S. Banks During the Financial Crisis

33 Pages Posted: 17 Aug 2011  

Huiqi Gan

Virginia Commonwealth University (VCU) - School of Business

Lisa Victoravich

University of Denver - Daniels College of Business

Tracy Xu

University of Denver

Date Written: August 16, 2011

Abstract

This paper examines the relation between institutional ownership and the compensation of executives at U.S. banking firms during the financial crisis period. We find that the monitoring role of institutional investors in shaping executive pay is different at banking firms than at general firms. We find that total executive compensation is increasing with institutional investors with potential business relations with the banking firms and decreasing with more independent institutional investors. Guardian funds such as foundations and trusts are the most effective monitors in terms of controlling the level of compensation. We also find evidence that specific types of institutional investors have different preferences for executive compensation mix (i.e., options vs. cash) and that this preference varies by type of executive (i.e. chief executive officer vs. chief financial officer).

Keywords: Institutional investor ownership, executive compensation, corporate governance, banks

JEL Classification: G30, G34

Suggested Citation

Gan, Huiqi and Victoravich, Lisa and Xu, Tracy, Institutional Ownership and Executive Compensation: Evidence from U.S. Banks During the Financial Crisis (August 16, 2011). AAA 2012 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1910996 or http://dx.doi.org/10.2139/ssrn.1910996

Huiqi Gan

Virginia Commonwealth University (VCU) - School of Business ( email )

Richmond, VA 23284-4000
United States

Lisa Victoravich (Contact Author)

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd.
Denver, CO 80208
United States

Tracy Xu

University of Denver ( email )

2201 S. Gaylord St
Denver, CO 80208-2685
United States

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