TY - JOUR
T1 - Ownership concentration and executive compensation in closely held firms
T2 - Evidence from Hong Kong
AU - Cheung, Stephen Y L
AU - Stouraitis, Aristotelis
AU - Wong, Anita W.S.
N1 - Copyright:
Copyright 2005 Elsevier B.V., All rights reserved.
PY - 2005/9
Y1 - 2005/9
N2 - 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.
AB - 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.
KW - Corporate governance
KW - Executive compensation
KW - Ownership structure
KW - Tunneling
UR - http://www.scopus.com/inward/record.url?scp=26844494107&partnerID=8YFLogxK
U2 - 10.1016/j.jempfin.2004.10.001
DO - 10.1016/j.jempfin.2004.10.001
M3 - Journal article
AN - SCOPUS:26844494107
SN - 0927-5398
VL - 12
SP - 511
EP - 532
JO - Journal of Empirical Finance
JF - Journal of Empirical Finance
IS - 4
ER -