Institutional Investor Preferences and Executive Compensation (Revision of 2011-103)

Abstract: In this paper, we investigate the attitudes of institutional investors, such as hedge funds, insurance companies, mutual funds and pension funds, towards a key corporate governance mechanism, namely executive compensation. We document the preferences they have about both the level and structure of executive compensation. Our analysis takes a comparative approach as we ask investors to reveal their preferences both for firms in the U.S. and in The Netherlands. Our analysis further sheds light on who should decide on executive pay, thereby contributing to the recent debate on shareholder involvement in executive pay. Finally, we examine their views on the most important and largest component of executive pay, executive stock options, and investigate what preferences they have when it comes to the design of such options.Executive Compensation;Institutional Investors;Corporate Governance.

Understanding Internal Capital Markets and Corporate Policies

This study looks inside a large retail-banking group to understand how corporate politics affect internal capital allocation. The group consists of a headquarters organization and about 150 member banks which own the headquarters. Our data is from the firm’s managerial accounting system and covers all cash flows, internal capital transfers, and investments at the local member bank level. We first show that a member bank’s investment (net loan growth) is generally not fully independent from its own cash flow (net deposit growth). Then we show that such constraints are not apparent at more influential member banks, where influence is measured by the divergence of voting rights from ownership rights. The more influential banks are allocated more funds from the headquarters, but also show more restraints in investments when experiencing large deposit inflows. Influence matters more among member banks requiring more information exchanges with the headquarters as a result of more volatile funding requests. Influence also matters more for small business loans, which contain more soft information, than for standardized residential mortgage loans. These results suggest that corporate politics can be used to address allocation inefficiencies resulting from information asymmetries between the headquarters and divisions (member banks in our case).internal capital markets;capital markets;retail banking;corporate politics

Institutional Investor Preferences and Executive Compensation (Revision of 2011-028)

Abstract: In this paper, we investigate the attitudes of institutional investors, such as hedge funds, insurance companies, mutual funds and pension funds, towards a key corporate governance mechanism, namely executive compensation. We document the preferences they have about both the level and structure of executive compensation. Our analysis takes a comparative approach as we ask investors to reveal their preferences both for firms in the U.S. and in The Netherlands. Our analysis further sheds light on who should decide on executive pay, thereby contributing to the recent debate on shareholder involvement in executive pay. Finally, we examine their views on the most important and largest component of executive pay, executive stock options, and investigate what preferences they have when it comes to the design of such options.

Institutional Investor Preferences and Executive Compensation (Revision of 2011-103)

Abstract: In this paper, we investigate the attitudes of institutional investors, such as hedge funds, insurance companies, mutual funds and pension funds, towards a key corporate governance mechanism, namely executive compensation. We document the preferences they have about both the level and structure of executive compensation. Our analysis takes a comparative approach as we ask investors to reveal their preferences both for firms in the U.S. and in The Netherlands. Our analysis further sheds light on who should decide on executive pay, thereby contributing to the recent debate on shareholder involvement in executive pay. Finally, we examine their views on the most important and largest component of executive pay, executive stock options, and investigate what preferences they have when it comes to the design of such options.