Abstract
Motivated by recent ethical concern regarding astronomical Chief Executive Officer (CEO) compensation worldwide and calls for more research on the role of institutional investors in reducing agency costs, this study examines whether institutional investors affect the alignment of firm performance and CEO compensation measured by CEO pay-performance sensitivity (PPS) of Malaysian firms. Using a sample of 3,584 firms from 2003 to 2012, we find that overall total institutional investor ownership has a negative effect on CEO PPS. However, we find that these negative results are driven by local institutional ownership; foreign institutional investors, on the other hand, show a positive effect on CEO PPS. This suggests that local institutional investors as a result of being backed by government funds are subject to more conflicts of interests compared to foreign investors. Our results provide some insights on the role of government backed funds and foreign institutional investors in ensuring that CEO pay is justified by firm performance.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
