An empirical analysis of the impact of large changes in institutional ownership on CEO compensation risk

Using a panel of publicly traded companies with large changes in institutional holdings, we find that CEO compensation risk is significantly higher in a company with a higher level of aggregate institutional holdings excluding top five holdings. Conversely, institutional ownership concentration, measured by the top five to total institutional holdings and institutional Herfindahl index, is negatively related to CEO compensation risk. We argue that while general institutional investors with relatively small stakes in a firm favor companies characterized by a higher CEO compensation risk, top institutional investors tend to lower the level of CEO compensation to address the concern of possible “public outrage.” Copyright Springer Science+Business Media, LLC 2015