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Additional Evidence on the Association Between Director Stock Ownership and Incentive Compensation

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Abstract

Governance scholars argue that outside directors have little incentive to monitor managers when their equity stake in the firm is not significant. A sample with a substantial level of outside director shareholdings is examined and a negative relationship between incentive compensation and outside director stock ownership is found. While firms pay higher incentive compensation when they have greater investment opportunities, the compensation contains excess pay due to ineffective corporate governance. Overall, the results suggest more effective corporate governance and lower incentive compensation when outside director stock ownership is higher.

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Authors and Affiliations

  1. Department of Accounting, School of Business and Management, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong

    Chih-Ying Chen

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  1. Chih-Ying Chen
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Chen, CY. Additional Evidence on the Association Between Director Stock Ownership and Incentive Compensation. Review of Quantitative Finance and Accounting 19, 21–44 (2002). https://doi.org/10.1023/A:1015726224797

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  • DOI: https://doi.org/10.1023/A:1015726224797

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