![](local/cache-vignettes/L300xH470/rubon9-59d38.jpg?1724744805)
-
Journal menu
- General information
- Editorial Board and External Reviewers
- Journal Policies
- Publication Ethics and Malpractice Statement
- Instructions for authors
- Paper reviewing
- Article processing charge
- Feedback from stakeholders
- Journal’s Open Access statement
- Order hard copies of the journal
- 50 most cited papers in the journal
EXECUTIVE COMPENSATION AND INVESTOR CLIENTELE
Download This ArticleAbstract
We provide a setting where due to a lack of sophistication, possibly arising from high opportunity costs of learning about accounting conventions and financial markets, nave (unsophisticated) investors are unable to decipher true executive compensation accurately. Expected compensation is therefore higher when such investors form a more significant clientele in the market for a firm’s stock. Our model further suggests that increased information asymmetry between informed and uninformed traders may deter the entry of uninformed investors and keep executive compensation in check. Technologies that lower the cost of trading facilitate entry of relatively unsophisticated investors and raise expected compensation. In general, such compensation can be reduced through requirements that increase disclosure transparency. Empirical tests provide support to the key implication of the model that indirect executive compensation is higher in stocks with higher liquidity, which are likely to have greater unsophisticated investor participation.
Keywords: Coprorate Governance, Executive Compensation, Investors
How to cite this paper: Li, F., & Subrahmanyam, A. (2009). Executive compensation and investor clientele. Corporate Ownership & Control, 6(4-2), 272-292. https://doi.org/10.22495/cocv6i4c2p2