Common institutional ownership and executive pay-performance sensitivity: Mediating role of information transparency and fund occupation

Research in corporate governance highlights the development of executive compensation contracts as a crucial strategy for mitigating agency conflicts. This study uses the pay-performance sensitivity (PPS) of executives as a metric to evaluate the effectiveness of compensation agreements, specifically examining the influence of common institutional ownership (CIO) with data from publicly traded companies between 2009 and 2022. The findings reveal the existence of PPS and its amplification through CIO, a conclusion that remains robust after conducting various tests. Moreover, the research identifies two mediating effects: information transparency and fund occupation. The co-governance role of CIO is found to be more pronounced in the eastern region, within state-owned enterprises, and in contexts characterized by higher agency costs and greater equity concentration. These insights deepen our understanding of the governance synergies associated with CIO, offering both theoretical and empirical foundations for the design of executive compensation contracts. [Display omitted] •The measurement of common institutional ownership includes three types of indicators.•A composite indicator is employed to measure the level of information transparency.•Common institutional ownership affects executive pay-performance sensitivity.•Information transparency and fund occupation play intermediary roles.•This study enriches the research perspective of common institutional ownership.