An Empirical Study About Institutional Investors’ Influence On The Management Incentive

How to implement effective management incentives and supervision is the key areas ofcorporate governance. As the most common incentive, Executive pay has become the focus ofthe annual report of listed companies reported to attract many investors eyes. It not onlyprovokes a variety of doubts, but also touch the hearts of many investors in the market.Institutional investors are widely active in the securities market, not only have access to theinformation of listed companies, but can use their professional analysis to make investmentdecisions on companies, industries and national macro side. As an external oversight force,whether institutional investors to participate effectively in the corporate governance,management incentive and restraint or not, is the research direction of this article.Analyzed from the perspective of principal-agent theory, game theory model, strategicmanagement theory etc, this article discusses the reasons, the way and the effect ofinstitutional investors in corporate governance. Putting forward the hypothesis, establishingmodels to the impact of the overall holdings of institutional investors on executive pay levelsand pay performance sensitivity. on the basis of this results, the paper discusses heterogeneityof institutional investors by Brickley’s classification, classifies institutional investors into thepressure-insensitive and pressure-sensitive categories, and the analyze the impact of these twotypes of institutional investors holding of executive pay level and pay performance sensitivity.The results show that the overall holdings of institutional investors significantly increasethe level of executive compensation and pay performance sensitivity. But after institutionalclassification, two types of institutional investors showed different characteristics: thepressure-insensitive institutional investors have a more significant positive correlationbetween executive pay levels and pay performance sensitivity, but the pressure-sensitive onexecutive compensation level and pay performance sensitivity is not significant. Only aneffective system of listed companies to optimize the use of the advantages of institutionalinvestors, while promoting the normal and orderly development of the institutional investors,a win-win situation can be achieved. This article makes the following recommendations. Firstof all, The government needs to optimize the management incentive system and pay structure.Second, the management needs to strengthen the functions of the Remuneration Committeeand the transparency of compensation decisions and related information. Third, the marketneeds to guide the development of the heterogeneity of institutional investors to play theleading role in the market.