Institutional Investors and Executive Compensation

36 Pages Posted: 6 Sep 2000

See all articles by Jay C. Hartzell

Jay C. Hartzell

University of Texas at Austin - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Date Written: September 2002

Abstract

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

Hartzell, Jay C. and Starks, Laura T., Institutional Investors and Executive Compensation (September 2002). AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=236592 or http://dx.doi.org/10.2139/ssrn.236592

Jay C. Hartzell (Contact Author)

University of Texas at Austin - Department of Finance ( email )

1 University Station B6600
Austin, TX 78712
United States
512-471-6779 (Phone)
512-471-5073 (Fax)

HOME PAGE: http://www.mccombs.utexas.edu/faculty/jay.hartzell/

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

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