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Ownership Concentation and Executive COmpenation in Closely Held Firms: Evidence from Hong Kong

Author

Listed:
  • Yan-Leung Cheung

    (City University of Hong Kong)

  • Aris Stouraitis

    (City University of Hong Kong)

  • Anita Wong

    (City University of Hong Kong)

Abstract

Owners-managers of closely held firms effectively decide on the level of their own compensation. We test the relationship between ownership concentration and executive compensation, using panel data for a sample of 412 Hong Kong firms during 1995-1998. We find a positive relationship between managerial ownership and top executive cash emoluments for levels of ownership of up to 25 percent in small and in family controlled firms, and for up to 5 percent in large firms. We also find no sensitivity of pay to performance in small firms. These findings may indicate that in the presence of information asymmetry between owners-managers and outside investors the former may use their ownership rights to extract higher salaries for themselves. There is also evidence that top executives with larger shareholdings may be using dividends as a way to supplement their cash salaries. Further tests show that the observed relationships do not result from a link between compensation, performance, managerial effort, and managerial ownership. With the exception of boards of directors having an auditing committee, we find that boards cannot prevent this form of expropriation.

Suggested Citation

  • Yan-Leung Cheung & Aris Stouraitis & Anita Wong, 2003. "Ownership Concentation and Executive COmpenation in Closely Held Firms: Evidence from Hong Kong," Working Papers 142003, Hong Kong Institute for Monetary Research.
    • Handle: RePEc:hkm:wpaper:142003
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    More about this item

    Keywords

    ownership structure; executive compensation; corporate governance;
    All these keywords.

    JEL classification:

    • 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
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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