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

See all articles by Gavin Smith

Gavin Smith

University of New South Wales - School of Banking and Finance

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Date Written: May 8, 2013

Abstract

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

Smith, Gavin and Swan, Peter Lawrence, Do Institutional Investors Really Reduce Executive Compensation whilst Raising Incentives? (May 8, 2013). Critical Finance Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=979525 or http://dx.doi.org/10.2139/ssrn.979525

Gavin Smith

University of New South Wales - School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
Australia
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/peterswan

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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