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Dual Ownership and Risk-Taking Incentives in Managerial Compensation

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  • Tao Chen
  • Li Zhang
  • Qifei Zhu

Abstract

This article studies how the three-way interaction among shareholders, creditors, and managers shapes firms’ executive compensation. Firms with a higher ownership share by “dual holders”—institutional investors that simultaneously hold equity and bond of the company—adopt a less risk-inducing compensation structure: less stock options and more inside debt. Exploiting financial institution mergers that increase or decrease dual ownership for portfolio companies, we identify a causal link between dual ownership and CEO compensation policies. Mutual fund proxy voting data suggest that shareholder voting is an important channel for dual holders to implement less convex contracts.

Suggested Citation

  • Tao Chen & Li Zhang & Qifei Zhu, 2023. "Dual Ownership and Risk-Taking Incentives in Managerial Compensation," Review of Finance, European Finance Association, vol. 27(5), pages 1823-1857.
    • Handle: RePEc:oup:revfin:v:27:y:2023:i:5:p:1823-1857.
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    File URL: http://hdl.handle.net/10.1093/rof/rfad007
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    References listed on IDEAS

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