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Institutional Investors and Executive Compensation

  • Jay C. Hartzell

    (Department of Finance, McCombs School of Business, University of Texas at Austin)

  • Laura T. Starks

    (Department of Finance, McCombs School of Business, University of Texas at Austin)

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    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. Copyright 2003 by the American Finance Association.

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    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 58 (2003)
    Issue (Month): 6 (December)
    Pages: 2351-2374

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    Handle: RePEc:bla:jfinan:v:58:y:2003:i:6:p:2351-2374
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