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Institutional Investors and Executive Compensation
Author(s) -
Hartzell Jay C.,
Starks Laura T.
Publication year - 2003
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1046/j.1540-6261.2003.00608.x
Subject(s) - executive compensation , compensation (psychology) , shareholder , business , agency (philosophy) , accounting , institutional investor , principal–agent problem , investment (military) , monetary economics , finance , corporate governance , economics , psychology , social psychology , political science , epistemology , politics , law , philosophy
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.