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Do Concentrated Institutional Investors Really Reduce Executive Compensation Whilst Raising Incentives?

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  • Smith, Gavin S.
  • Swan, Peter L.

Abstract

Hartzell and Starks (HS) (2013) 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.

Suggested Citation

  • Smith, Gavin S. & Swan, Peter L., 2014. "Do Concentrated Institutional Investors Really Reduce Executive Compensation Whilst Raising Incentives?," Critical Finance Review, now publishers, vol. 3(1), pages 49-83, January.
    • Handle: RePEc:now:jnlcfr:104.00000014
    DOI: 10.1561/104.00000014
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    Cited by:

    1. Fan Yu, 2020. "Monitoring and CEO Contractual Incentive Pay," International Review of Finance, International Review of Finance Ltd., vol. 20(3), pages 701-736, September.
    2. Zhilan Feng & Chinmoy Ghosh & Fan He & C. Sirmans, 2010. "Institutional Monitoring and REIT CEO Compensation," The Journal of Real Estate Finance and Economics, Springer, vol. 40(4), pages 446-479, May.

    More about this item

    Keywords

    Executive compensation; Monitoring; Institutional ownership; Principal-agent; Incentives; Concentrated ownership;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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