Institutional shareholding as a corporate governance mechanism that drives ceo pay

Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy

“…This bridges the interest gap between hired executives and dispersed shareholders (Jensen & Murphy, 1990; Orazayeva, 2021; Rehman et al, 2021; Zhang et al, 2021; Zoghlami, 2021). However, poor disclosure of information by listed firms and weak institutions prevalent in developing and emerging countries tend to step‐up the likelihood of exploitation of information asymmetries (Álvarez‐Botas & González‐Méndez, 2019; Harvey et al, 2019; Pucheta‐Martínez & Chiva‐Ortells, 2020) by professional managers of listed firms. This is an indication that weak or strong institutions have crucial roles to play in determining the effectiveness of internal and external corporate governance mechanisms (Marcos & Castrillo, 2020; Schmid et al, 2018; Waqar, 2020; Wijayana & Gray, 2019) in listed firms.…”

“…It has been argued, within the context of managerial power theory, in the extant literature that compensation contracts for executives can be manipulated and hijacked by powerful executives. Influential executives often meddle in board politics and affairs to have to say in the determination of their pays (Agrawal & Nasser, 2019; Antounian et al, 2021; Bachmann et al, 2020; Chen et al, 2019; Cho et al, 2019; Choi et al, 2019; Fung & Pecha, 2019; Loyola & Portilla, 2020; Pucheta‐Martínez & Chiva‐Ortells, 2020; Song & Wan, 2019). It implies that compensation contracts for executives usually signal the existence of opportunistic behavior and managerial rent‐seeking activities which subvert the effectiveness of board decisions in designing optimal executive compensation (Bertrand & Mullainathan, 2001; Cho et al, 2019; Conyon et al, 2019; Hoi et al, 2019; Göx & Hemmer, 2020; Olaniyi, 2019; Olaniyi & Olayeni, 2020).…”