Teaming Up and Quiet Intervention: The Impact of Institutional Investors on Executive Compensation Policies

19 Pages Posted: 15 Oct 2016 Last revised: 20 Jan 2017

See all articles by Mieszko Mazur

Mieszko Mazur

Catholic University of Lille - IESEG School of Management

Galla Salganik-Shoshan

Ben-Gurion University of the Negev

Date Written: December 11, 2016

Abstract

In this paper, we investigate whether institutional investors intervene in firms in order to impact their incentive systems. We use metrics based on geographic distance between institutional investors as proxies for the intensity of their strategic interactions and plausible interventions. We find that when investors are geographically proximate to one another, firms tend to adopt executive compensation contracts that exhibit more performance-based mechanisms, higher incentives to expend managerial effort, and higher incentives to make risky and positive NPV policy choices. We also find that geographic distance between institutions is a significant determinant of the executive pay differentials.

Keywords: Institutional investors; Executive compensation; Strategic interactions; Executive pay disparity; Geography

JEL Classification: G23, J33, M52

Suggested Citation

Mazur, Mieszko and Salganik-Shoshan, Galla, Teaming Up and Quiet Intervention: The Impact of Institutional Investors on Executive Compensation Policies (December 11, 2016). Journal of Financial Markets, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2475347 or http://dx.doi.org/10.2139/ssrn.2475347

Mieszko Mazur (Contact Author)

Catholic University of Lille - IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Puteaux, 92800
France

Galla Salganik-Shoshan

Ben-Gurion University of the Negev ( email )

Beer Sheva
Israel

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