Institutional investors? corporate site visits and pay-performance sensitivity

This study investigates whether and how institutional investors' site visits affect executive compensation contracts. Using Chinese listed firms on the Shenzhen Stock Exchange from 2013 to 2018, we find that institutional investors' site visits significantly promote executives' pay-forperformance sensitivity (PPS), and this effect is prominent only for firms with a more powerful CEO and for private firms. The results are robust after controlling for alternative explanations and mitigating endogeneity issues. Furthermore, the positive relationship between site visits and PPS is significant only for firms with more receptionists attending visits, more senior executives participating in investor receptions, and more site visits conducted in peak months. Mechanism analysis suggests that investors can motivate executives to take more risks and improve firm information transparency, ultimately increasing PPS. Overall, our findings indicate that investor site visits play an important role in improving the effectiveness of executive compensation contracts.