Institutional Investors and Executive Compensation

We find that institutional ownership concentration is positively related to the pay-for-performance sensitivity of executive compensation and negatively related to the level of compensation, even after controlling for firm size, industry, investment opportunities, and performance. These results sugg...

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Bibliographic Details
Published in:The Journal of finance (New York) 2003-12, Vol.58 (6), p.2351-2374
Main Authors: Hartzell, Jay C., Starks, Laura T.
Format: Article
Language:English
Subjects:
Agency theory
Business management
Chief executive officers
Executive compensation
Incentive pay
Institutional investments
Investment strategies
Investors
Market capitalization
Pay for performance
Shareholder relations
Shareholders
Stock prices
Studies
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Summary:We find that institutional ownership concentration is positively related to the pay-for-performance sensitivity of executive compensation and negatively related to the level of compensation, even after controlling for firm size, industry, investment opportunities, and performance. These results suggest that the institutions serve a monitoring role in mitigating the agency problem between shareholders and managers. Additionally, we find that clientele effects exist among institutions for firms with certain compensation structures, suggesting that institutions also influence compensation structures through their preferences.
ISSN:0022-1082
1540-6261
DOI:10.1046/j.1540-6261.2003.00608.x