Do Institutional Investors Really Reduce Executive Compensation whilst Raising Incentives?
Critical Finance Review, Forthcoming
33 Pages Posted: 13 Apr 2007 Last revised: 8 May 2013
Date Written: May 8, 2013
Hartzell and Starks (2003) [HS] report that firms with more concentrated institutional investors pay executives less and make this pay more sensitive to performance. In an extended data set covering 1992 to 2010, we find that institutional concentration has no such effects when we control for firm size with a logarithmically transformed market capitalization instead of HS’s raw market capitalization. This holds both in the long-run time-series and in the panel analysis. Firms that HS consider monitored do not seem to have better control of managerial compensation or performance than their unmonitored counterparts. Our results are, on the whole, inconsistent with any form of concentrated institutional monitoring.
Keywords: Executive compensation, Monitoring, Institutional ownership, Principal-agent, Incentives, Concentrated ownership
JEL Classification: G23, G32, J33
Suggested Citation: Suggested Citation