Review of Quantitative Finance and Accounting

, Volume 19, Issue 1, pp 21–44

Additional Evidence on the Association Between Director Stock Ownership and Incentive Compensation

  • Chih-Ying Chen

DOI: 10.1023/A:1015726224797

Cite this article as:
Chen, C. Review of Quantitative Finance and Accounting (2002) 19: 21. doi:10.1023/A:1015726224797


Governance scholars argue that outside directors have little incentive to monitor managers when their equity stake in the firm is not significant. A sample with a substantial level of outside director shareholdings is examined and a negative relationship between incentive compensation and outside director stock ownership is found. While firms pay higher incentive compensation when they have greater investment opportunities, the compensation contains excess pay due to ineffective corporate governance. Overall, the results suggest more effective corporate governance and lower incentive compensation when outside director stock ownership is higher.

incentive compensationinvestment opportunitiescorporate governanceagency costdirector ownership

Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Chih-Ying Chen
    • 1
  1. 1.Department of Accounting, School of Business and ManagementHong Kong University of Science and TechnologyClear Water Bay, KowloonHong Kong