Review of Finance Vol. 27 No. 5 2023

Dual Ownership and Risk-Taking Incentives in Managerial Compensation

Tao Chen¹; Li Zhang²; Qifei Zhu¹

¹ Nanyang Business School, Nanyang Technological University, Singapore · ² International Institute of Finance, School of Management, University of Science and Technology of China, China

Abstract

This article studies how the three-way interaction among shareholders, creditors, and managers shapes firms’ executive compensation. Firms with a higher ownership share by “dual holders”—institutional investors that simultaneously hold equity and bond of the company—adopt a less risk-inducing compensation structure: less stock options and more inside debt. Exploiting financial institution mergers that increase or decrease dual ownership for portfolio companies, we identify a causal link between dual ownership and CEO compensation policies. Mutual fund proxy voting data suggest that shareholder voting is an important channel for dual holders to implement less convex contracts.

DOI

10.1093/rof/rfad007

Volume

27

Issue

5

Pages

1823-1857

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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