Large shareholder turnover and CEO compensation.

摘要

The corporate governance literature generally assumes that shareholders' incentives to monitor management depend on how much of the firm the shareholders own. This dissertation proposes that another determinant of monitoring incentive is how long large shareholders hold their shares, which can be measured by the turnover rate of their shares. Specifically, large shareholders' investment horizons for a firm in which they invest (an investee firm) are likely to depend on the nature of the shareholders and the investee firm's characteristics that influence costs and benefits of monitoring management. The large shareholders' horizons, in turn, influence their cost-benefit trade-offs in monitoring management, and thus the extent to which the outside blockholders monitor investee firm management. To test this assertion, I explore two primary issues on large shareholders, defined as outside blockholders with at least 5% ownership stake in the firm. First, I examine whether outside blockholders' investment horizons vary across the firms in which they invest, and if so, what determine their investment horizons. The empirical results show that outside blockholders' horizons do vary across investee firms, and that this variation depends on the characteristics of the investee firms. The systematic association in the data further suggests that outside blockholders' horizons vary in ways that reflect outside blockholders' rational responses to their monitoring cost-benefit trade-offs due to investee firm characteristics. Second, I examine how outside blockholders' horizons are related to the design of the investee firm's CEO compensation. I find that investee firms with greater outside blockholder turnover (i.e., shorter-horizon outside blockholders) are likely to design CEO compensation with greater pay-performance sensitivity and a higher level of CEO compensation. Further, the greater pay-performance sensitivity is primarily due to option-based incentives but not due to cash-based incentives. These results indicate that firms with shorter-horizon outside blockholders use incentive contracting more extensively to counter the potentially weaker monitoring by their outside blockholders.