Institutional Investors and Executive Compensation Redux: A Comment on "Do Concentrated Institutional Investors Really Reduce Executive Compensation Whilst Raising Incentives" Available to Purchase

Smith and Swan (2013), referred to as SS, question the robustness of the results of Hartzell and Starks (2003), referred to as HS. We discuss the fact that they have to make two significant and unwarranted changes to our model specifications in order to remove the significance of the HS results. Simply logging firm size does not affect the significance of the relation between pay for performance and institutional investor concentration. In order to find an insignificant relation, SS also must develop a different and inferior measure of institutional investor concentration, and use that measure in conjunction with changes to the firm size controls. Thus, we maintain our original conclusion, as well as that of other researchers, that institutional investors both care about and have the ability to influence corporate governance, including executive compensation.