Abstract
We investigate monitoring of CEO incentives and pay levels by institutional investors. Consistent with the microstructural monitoring equilibrium of Noe (2002), we show that option-grant pay-performance sensitivity is positively related to institutional trading intensity. Trading intensity also raises CEO pay. This is to be expected with preservation of reservation CEO utility levels. Institutions with the smallest holdings and highest portfolio turnover rates have the largest positive effects on compensation levels. This is also consistent with Noe's equilibrium. Our OLS results are robust to firm random and fixed firm effects and potential endogeneity problems.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: 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.