Institutional Investors and Executive Compensation
36 Pages Posted: 6 Sep 2000
Date Written: September 2002
We find that institutional ownership concentration is positively related to the pay-for-performance sensitivity of executive compensation and negatively related to the level of compensation, even after controlling for firm size, industry, investment opportunities and performance. These results suggest that the institutions serve a monitoring role in mitigating the agency problem between shareholders and managers. Additionally, we find that clientele effects exist among institutions for firms with certain compensation structures, suggesting that institutions also influence compensation structures through their preferences.
Keywords: Executive compensation, institutional investors, pay-for-performance, large shareholders, agency problems
JEL Classification: G30, G32, G34
Suggested Citation: Suggested Citation