Institutional Investors and Executive Compensation

39 Pages Posted: 3 Nov 2008

See all articles by Jay C. Hartzel

Jay C. Hartzel

affiliation not provided to SSRN

Laura T. Starks

University of Texas at Austin - Department of Finance

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.

Suggested Citation

Hartzel, Jay C. and Starks, Laura T., Institutional Investors and Executive Compensation (July 2000). NYU Working Paper No. FIN-00-015, Available at SSRN: https://ssrn.com/abstract=1294637

Jay C. Hartzel (Contact Author)

affiliation not provided to SSRN

No Address Available

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

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