HEADS I WIN, TAILS YOU LOSE: INSTITUTIONAL MONITORING OF EXECUTIVE PAY RIGIDITY

Paul Moon Sub Choi; Chune Young Chung; Ji Hoon Hwang; Chang Liu

doi:10.1111/jfir.12196

HEADS I WIN, TAILS YOU LOSE: INSTITUTIONAL MONITORING OF EXECUTIVE PAY RIGIDITY

Paul Moon Sub Choi, Chune Young Chung, Ji Hoon Hwang, Chang Liu

Division of Business Administration

Research output: Contribution to journal › Article › peer-review

10 Scopus citations

Abstract

Agency theory argues that pay for performance alleviates the conflict of interest between managers and shareholders. Furthermore, the literature finds that institutional monitoring tends to promote the performance–pay linkage, thus aligning the two parties’ incentives. We find that executive compensation rigidity is negatively and significantly associated with firm value. Moreover, ownership by long-term institutional investors reduces the pay rigidity of top managers in underperforming firms, thus decreasing the value-destroying effect of the rigidity. Overall, these results reaffirm the role of institutional monitoring in mitigating managerial rent extraction.

Original language	English
Pages (from-to)	789-816
Number of pages	28
Journal	Journal of Financial Research
Volume	42
Issue number	4
DOIs	https://doi.org/10.1111/jfir.12196
State	Published - 1 Dec 2019

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Publisher Copyright:
© 2019 The Southern Finance Association and the Southwestern Finance Association

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abstract = "Agency theory argues that pay for performance alleviates the conflict of interest between managers and shareholders. Furthermore, the literature finds that institutional monitoring tends to promote the performance–pay linkage, thus aligning the two parties{\textquoteright} incentives. We find that executive compensation rigidity is negatively and significantly associated with firm value. Moreover, ownership by long-term institutional investors reduces the pay rigidity of top managers in underperforming firms, thus decreasing the value-destroying effect of the rigidity. Overall, these results reaffirm the role of institutional monitoring in mitigating managerial rent extraction.",

author = "Choi, {Paul Moon Sub} and Chung, {Chune Young} and Hwang, {Ji Hoon} and Chang Liu",

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AU - Hwang, Ji Hoon

AU - Liu, Chang

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HEADS I WIN, TAILS YOU LOSE: INSTITUTIONAL MONITORING OF EXECUTIVE PAY RIGIDITY

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