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Executive pay in Japan: the role of bank-appointed monitors and the Main Bank relationship

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  • Abe, Naohito
  • Gaston, Noel
  • Kubo, Katsuyuki

Abstract

The tournament model has the feature that executive compensation depends on the wages paid to workers at lower levels of the corporate hierarchy. The agency model shows that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine aspects of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 56 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.

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Bibliographic Info

Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 17 (2005)
Issue (Month): 3 (August)
Pages: 371-394

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Handle: RePEc:eee:japwor:v:17:y:2005:i:3:p:371-394

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Web page: http://www.elsevier.com/locate/inca/505557

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Citations

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Cited by:
  1. Unite, Angelo A. & Sullivan, Michael J. & Brookman, Jeffrey & Majadillas, Mary Anne & Taningco, Angelo, 2008. "Executive pay and firm performance in the Philippines," Pacific-Basin Finance Journal, Elsevier, vol. 16(5), pages 606-623, November.
  2. Hearn, Bruce, 2013. "The determinants of director remuneration, executive tenure and individual executive disclosure in North African IPO firms," Research in International Business and Finance, Elsevier, vol. 27(1), pages 162-182.
  3. Chiaki Moriguchi, 2008. "Top Wage Incomes in Japan, 1951-2005," NBER Working Papers 14537, National Bureau of Economic Research, Inc.
  4. Intan Oviantari Author_Email: ioviantari@yahoo.com, 2011. "Directors And Commissioners Remuneration And Firm Performance: Indonesian Evidence," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-287, Conference Master Resources.
  5. Toru Yoshikawa & Jean McGuire, 2008. "Change and continuity in Japanese corporate governance," Asia Pacific Journal of Management, Springer, vol. 25(1), pages 5-24, January.
  6. Sunny Sun & Xia Zhao & Haibin Yang, 2010. "Executive compensation in Asia: A critical review and outlook," Asia Pacific Journal of Management, Springer, vol. 27(4), pages 775-802, December.
  7. Naohito Abe & Taehun Jung, 2004. "Cross-Shareholdings, Outside Directors, and Managerial Turnover: The Case of Japan," Hi-Stat Discussion Paper Series d04-38, Institute of Economic Research, Hitotsubashi University.

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