This study, based on the theoretical model of Kim and Suh (1993), examines the impact of the relative informativeness difference between accounting performance and market performance according to institutional investor trading volume on earnings response coefficients (ERC) and managerial compensation contracts. Because market performance is influenced by public information such as accounting performance, a correlation exists between accounting performance and market performance variables. However, existing empirical studies may produce distorted results by showing the weight of each performance variable on managerial compensation contracts without controlling for the correlation between the two variables. Therefore, this study empirically examines the distortion effect on the weights of performance variables according to institutional investor trading volume. The analysis reveals that firms with higher institutional investor trading volume exhibit larger ERCs, and the relative importance of market performance compared to accounting performance in managerial compensation is overestimated. Such results are more pronounced in firms with higher foreign institutional investor trading volume compared to domestic institutional investors. This implies that firms with higher foreign institutional investor trading volume have greater informativeness of accounting performance, resulting in larger ERCs and more pronounced distortion effects between the two variables in managerial compensation. This study is the first paper to simultaneously discuss the valuation role and stewardship role of accounting variables by analyzing the impact of the relative informativeness of accounting and market performance on ERCs and managerial compensation contracts. Through this, it provides implications that future empirical research related to firms' financial performance in the field of managerial compensation contracts should recognize the indirect influence of accounting performance embedded in market performance and exercise careful consideration in model design and interpretation of results. Furthermore, by distinguishing institutional investors into foreign and domestic institutional investors and presenting empirical results on the differences between the two groups, it provides supporting arguments for the position that regulatory authorities should establish differentiated institutional frameworks and management systems for monitoring and supervising the two groups.