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New active blockholders and adjustment of CEO relative incentive ratios

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  • Nguyen, Phuong L.
  • Galpin, Neal
  • Twite, Garry

Abstract

We study the emergence of blockholders as an important mechanism that corrects deviations from target CEO relative debt-to-equity incentive ratios. We find that a new active blockholder more likely emerges when a firm deviates from target; deviations fall during the period the blockholder owns shares; and deviations fall more when the blockholder appoints a director to the firm. When a firm is above (below) target, blockholders are associated with less (more) inside debt and more (no change in) inside equity, implying there is no “one-size-fits-all” compensation change for blockholders. Outside debt and equity increase for both above and below target firms.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:corfin:v:72:y:2022:i:c:s0929119921002492
    DOI: 10.1016/j.jcorpfin.2021.102127
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    References listed on IDEAS

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    More about this item

    Keywords

    Blockholders; CEO compensation; Inside debt;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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