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Blockholder Heterogeneity, CEO Compensation, and Firm Performance

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  • Clifford, Christopher P.
  • Lindsey, Laura

Abstract

This paper examines heterogeneity in blockholder monitoring across investor types. We document which blockholder types (e.g., mutual funds, hedge funds) are more likely to be associated with active monitoring and show that firms targeted by such blockholders are more likely to increase the equity portion of chief executive officer (CEO) pay. Further, using market-wide and exogenous shocks to liquidity to identify differences in efficacy across blockholder types, we observe greater operating-performance improvements in actively monitored firms when passive monitoring is less effective, suggesting causal impact. We propose differences in compensation arrangements across blockholder types as a mechanism underlying blockholders’ heterogeneous role.

Suggested Citation

  • Clifford, Christopher P. & Lindsey, Laura, 2016. "Blockholder Heterogeneity, CEO Compensation, and Firm Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 51(5), pages 1491-1520, October.
    • Handle: RePEc:cup:jfinqa:v:51:y:2016:i:05:p:1491-1520_00
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    Citations

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    Cited by:

    1. Wolfgang Breuer & Andreas Knetsch & Astrid Juliane Salzmann, 2020. "What Does It Mean When Managers Talk About Trust?," Journal of Business Ethics, Springer, vol. 166(3), pages 473-488, October.
    2. Khine Kyaw & Steen Thomsen & Sirimon Treepongkaruna, 2022. "Firms' potential for economic sustainability and firm value: The moderating role of blockholders," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 884-901, October.
    3. Kang, Jun-Koo & Luo, Juan & Na, Hyun Seung, 2018. "Are institutional investors with multiple blockholdings effective monitors?," Journal of Financial Economics, Elsevier, vol. 128(3), pages 576-602.
    4. Onur Kemal Tosun, 2020. "Differences in CEO compensation under large and small institutional ownership," European Financial Management, European Financial Management Association, vol. 26(4), pages 1031-1058, September.
    5. Zheng, Jiayi & Zhu, Yushu, 2023. "Algorithmic trading and block ownership initiation: An information perspective," The British Accounting Review, Elsevier, vol. 55(4).
    6. Denes, Matthew R. & Karpoff, Jonathan M. & McWilliams, Victoria B., 2017. "Thirty years of shareholder activism: A survey of empirical research," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 405-424.
    7. Md. Mahmudul Alam & Yusnidah Ibrahim & Md Shahin Mia, 2020. "Climate change impacts on yield and financial performance of agro-plantation companies in Malaysia," Post-Print hal-03520113, HAL.
    8. Ping Jiang & Yunbiao Ma & Beibei Shi, 2022. "Common ownership and stock price crash risk: Evidence from China," Australian Economic Papers, Wiley Blackwell, vol. 61(4), pages 876-912, December.
    9. Brav, Alon & Jiang, Wei & Ma, Song & Tian, Xuan, 2018. "How does hedge fund activism reshape corporate innovation?," Journal of Financial Economics, Elsevier, vol. 130(2), pages 237-264.
    10. Nguyen, Phuong L. & Galpin, Neal & Twite, Garry, 2022. "New active blockholders and adjustment of CEO relative incentive ratios," Journal of Corporate Finance, Elsevier, vol. 72(C).
    11. von Lilienfeld-Toal, Ulf & Schnitzler, Jan, 2020. "The anatomy of block accumulations by activist shareholders," Journal of Corporate Finance, Elsevier, vol. 62(C).
    12. Chung, Chune Young & Kim, Hyeik & Wang, Kainan, 2022. "Do domestic or foreign institutional investors matter? The case of firm information asymmetry in Korea," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    13. Saikat Sovan Deb & Huu Nhan Duong & Amanjot Singh & Harminder Singh, 2024. "Does hedge fund activism improve investment efficiency?," Review of Accounting Studies, Springer, vol. 29(3), pages 2551-2577, September.
    14. Lindsay Baran & Silu Cheng, 2024. "Director awards and board effectiveness," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 41-73, March.
    15. Wang, Qin (Emma) & Zhang, Jun, 2023. "Local institutional investors and debt maturity," Journal of Financial Markets, Elsevier, vol. 62(C).
    16. Stefan Schmid & Sebastian Baldermann, 2021. "CEOs’ International Work Experience and Compensation," Management International Review, Springer, vol. 61(3), pages 313-364, June.

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