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An empirical analysis of the impact of large changes in institutional ownership on CEO compensation risk

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  • Yixi Ning
  • Xiankui Hu
  • Xavier Garza-Gomez

Abstract

Using a panel of publicly traded companies with large changes in institutional holdings, we find that CEO compensation risk is significantly higher in a company with a higher level of aggregate institutional holdings excluding top five holdings. Conversely, institutional ownership concentration, measured by the top five to total institutional holdings and institutional Herfindahl index, is negatively related to CEO compensation risk. We argue that while general institutional investors with relatively small stakes in a firm favor companies characterized by a higher CEO compensation risk, top institutional investors tend to lower the level of CEO compensation to address the concern of possible “public outrage.” Copyright Springer Science+Business Media, LLC 2015

Suggested Citation

  • Yixi Ning & Xiankui Hu & Xavier Garza-Gomez, 2015. "An empirical analysis of the impact of large changes in institutional ownership on CEO compensation risk," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 23-47, January.
    • Handle: RePEc:spr:jecfin:v:39:y:2015:i:1:p:23-47
    DOI: 10.1007/s12197-012-9236-9
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    More about this item

    Keywords

    Institutional Holdings; Ownership Concentration; CEO Compensation Risk; G30; G32;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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