Based on the traditional agency theory, our objective is to analyse the relationship between institutional ownership and CEO compensation. We collected panel data of 1959 companies over the 22 years of period from 1992-2013, and found significant evidence that institutional shareholders influence corporate governance through CEO compensation. Greater institutional ownership concentration is negatively related with total CEO compensation, salary and options. In addition, ownership concentration is associated with greater use of behaviour-based compensation (salary). On the other hand, ownership level is associated with increased level of CEO compensation and greater use of incentive-based compensation (options). These results broadly confirm the idea that if there is a large institutional owner, compensation levels of CEO are lower; while, when there is dispersed ownership of many institutions, institutions are less likely to monitor. These results are broadly consistent with Hertzell and Starks (2003).
MSc in Finance Project-Simon Fraser University
Copyright is held by the author(s).
You are free to copy, distribute and transmit this work under the following conditions: You must give attribution to the work (but not in any way that suggests that the author endorses you or your use of the work); You may not use this work for commercial purposes.
Member of collection