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
Date Written: December 11, 2016
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
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