Dual Ownership and Risk-Taking Incentives in Managerial Compensation

• DOI: 10.1093/rof/rfad007
• Publication Date: 2023-03-10T13:26:01Z
• Authors: Tao Chen; Li Zhang; Qifei Zhu
• Keywords: Executive compensation; Equity; Voting trust

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 bond of company—adopt less risk-inducing compensation structure: stock options more inside debt. Exploiting financial institution mergers increase or decrease dual for portfolio companies, we identify causal link between CEO policies. Mutual fund proxy voting data suggest shareholder is an important channel holders to implement convex contracts.