Institutional Investors and Executive Compensation
39 Pages Posted: 3 Nov 2008
Date Written: July 2000
Abstract
Due to institutional investors' increasing ownership and interest in corporate governance, we hypothesize that the presence of institutional investors is associated with certain executive compensation structures. We find a significantly negative relation between the level of compensation and the concentration of institutional ownership, suggesting that institutions serve a monitoring role in the shareholder-manager agency problem. We further find a significantly positive relation between the pay-for-performance sensitivity of executive compensation and both the level and concentration of institutional ownership.These results suggest that the institutions act as a complement rather than a substituteto incentive compensation in mitigating the agency problem.
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