Institutional ownership and CEO equity incentives

Brian Bratten, Yanfeng Xue

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

This study provides new evidence on the relation between institutional ownership and the equity incentives provided to CEOs by their portfolio holdings of stock and stock options. We show that when firms’ CEOs have abnormally high equity incentives, higher institutional ownership is associated with a larger reduction in the incentives. Conversely, when firms’ CEOs have abnormally low equity incentives, higher institutional ownership is associated with a larger increase in these incentives. To achieve this, we find that firms with higher institutional ownership that have abnormally high (low) incentives experience a greater reduction (increase) in CEO annual option grants and a substitution between CEO equity-based compensation and cash-based compensation. Our findings highlight the important role of institutional investors in enhancing efficiency in the top executives’ compensation contracting process.

Original languageEnglish
Pages (from-to)55-77
Number of pages23
JournalJournal of Management Accounting Research
Volume29
Issue number3
DOIs
StatePublished - Sep 1 2017

Bibliographical note

Publisher Copyright:
© 2017, American Accounting Association. All rights reserved.

Copyright:
Copyright 2017 Elsevier B.V., All rights reserved.

Keywords

  • CEO equity incentives
  • Compensation
  • Firm performance
  • Institutional monitoring

ASJC Scopus subject areas

  • Business and International Management
  • Accounting

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