The effect of Institutional Investors’ Distraction on the stickiness of the board of directors' compensation with an emphasis on management's overconfidence

The institutional shareholders inattention or lack of attention as the weakness of the supervisory mechanism and management overconfidence as the management’s behavioral factor can reduce the effectiveness of the incentive programs to maximize the company value and contracts efficiency. Based on this, the aim of this research is to investigate the effect of Institutional Investors’ Distraction on the stickiness of the board of directors' compensation with an emphasis on the management overconfidence of the companies admitted to the Tehran Stock Exchange. The test of the research hypotheses with the data of 123 companies in the period of 2012-2021 using multiple regression models, showed that while there is the effect of compensation stickiness, the Institutional Investors’ Distraction increases the intensity of compensation stickiness and by increasing the management overconfidence, the positive effect of Institutional Investors’ Distraction on the stickiness of the compensation stickiness increases. That is, the institutional shareholders inattention and management overconfidence causes a decrease in the proportionality of the paid compensation with the performance and an increase in the opportunistic behavior of the management.