Abstract
This paper studies how managerial compensation is shaped by the risk preference of shareholders. Firms with a large ownership held by holders'' -- institutional investors that simultaneously hold equity and bonds of the company -- choose a less risk-inducing compensation structure. Exploiting financial institution mergers that create dual holders 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.
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