Institutional Ownership and CEO Equity Incentives

Posted: 15 Sep 2016 Last revised: 10 Dec 2017

See all articles by Brian Bratten

Brian Bratten

University of Kentucky - Von Allmen School of Accountancy

Yanfeng Xue

George Washington University - Department of Accountancy

Date Written: July 2016

Abstract

This study provides new evidence on the relation between institutional ownership and the equity incentives provided to CEOs by their portfolio holdings of stock and stock options. We show that when firms’ CEOs have abnormally high equity incentives, higher institutional ownership is associated with a larger reduction in the incentives. Conversely, when firms’ CEOs have abnormally low equity incentives, higher institutional ownership is associated with a larger increase in these incentives. To achieve this, we find that firms with higher institutional ownership that have abnormally high (low) incentives experience a greater reduction (increase) in CEO annual option grants and a substitution between CEO equity-based compensation and cash-based compensation. Our findings highlight the important role of institutional investors in enhancing efficiency in top executives’ compensation contracting process.

Keywords: CEO Equity Incentives, Executive Compensation, Institutional Monitoring, Firm Performance

JEL Classification: G30, G34, J33, L25, M41

Suggested Citation

Bratten, Brian and Xue, Yanfeng, Institutional Ownership and CEO Equity Incentives (July 2016). Journal of Management Accounting Research, Vol. 29, No. 3, p. 55-77, 2017, Available at SSRN: https://ssrn.com/abstract=2838229

Brian Bratten (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States
859-257-1947 (Phone)

HOME PAGE: http://gatton.uky.edu/faculty-research/departments/von-allmen-school-accountancy/directory

Yanfeng Xue

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States

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