Institutional Common Ownership And Executive Excess Compensation

Based on the characteristics of shareholding,this paper studies how institutional common ownership effects the executive excess compensation.Institutional common ownership means an institutional investor whose portfolio includes a number of peer companies.Compared with ordinary investors,such institutional investors can internalize the positive externalities generated by corporate governance and obtain the information of multiple peer companies,so they will be more motivated and more capable to actively participate in the supervision of governance and reduce the excessive compensation of executives.In this paper,annual data of relevant variables from 2009 to 2018 are selected for empirical study.The results show that institutional common ownership can significantly reduce the level of excess executive compensation.Further analysis shows that in the companies with poor transparency of executive compensation information and in the industries with more external job opportunities for executives,the reduction effect of institutional common ownership on excess compensation is more significant.This paper also carried out robustness test by replacing the definition standard of peer companies and the shareholding ratio of senior executives as theexplained variables,and selected the first-order lagging term and the industry average term of the institutional common ownership as the instrumental variables of the explanatory variables for regression,so as to exclude the endogenous problem.The conclusion shows that institutional common ownership can play a positive role in reducing the executive excess compensation.The results of this paper supplement the literature on the relationship between institutional investors and executive compensation.Starting from holding peer companies,it provides a new perspective for the study of institutional investors,and also provides new suggestions for companies to alleviate the agency problem.