Ownership concentration and executive compensation in closely held firms: Evidence from Hong Kong

Stephen Y L Cheung, Aristotelis Stouraitis*, Anita W.S. Wong

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

81 Citations (Scopus)


Controlling shareholders, who often manage the firms they control, can expropriate minority shareholders in many ways, which are usually referred to as "tunneling". One of these ways is for owners-managers to set the level of their own compensation. We test the relationship between ownership concentration and executive compensation, using panel data for a sample of 412 Hong Kong firms during 199-1998. We find a positive relationship between managerial ownership and cash emoluments for levels of ownership of up to 35% in small and in family controlled firms, and for up to 10% in large firms. Our tests show that the observed relationships do not result from compensation serving as a proxy for managerial effort. We interpret these findings as suggesting that in the presence of information asymmetry between entrenched managers and outside investors the former may use their ownership rights to extract higher salaries for themselves. There is also weaker evidence that top executives with larger shareholdings may be using dividends as a way of supplementing their cash salaries.

Original languageEnglish
Pages (from-to)511-532
Number of pages22
JournalJournal of Empirical Finance
Issue number4
Publication statusPublished - Sept 2005

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • Corporate governance
  • Executive compensation
  • Ownership structure
  • Tunneling


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