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Executive Compensation, Firm Performance, and Chaebols in Korea: Evidence from New Panel Data

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  • Kato, Takao

    (Colgate University)

  • Kim, Woochan

    (KDI School of Public Policy and Management)

  • Lee, Ju Ho

    (KDI School of Public Policy and Management)

Abstract

This paper provides the first rigorous econometric estimates on the pay-performance relations for executives of Korean firms with and without Chaebol affiliation. To do so, we have assembled for the first time panel data (that provide information not only on executive compensation and firm performance but also on Chaebol affiliation) for 246 firms that were included in KOSPI200 for at least two consecutive years from 1998 to 2001. Contrary to a popular belief that Korean corporate governance and the structure of Korean executive compensation is considerably different from elsewhere in the West, we find that cash compensation of Korean executives is statistically significantly related to stock market performance and that the magnitude of the sensitivity of pay to stock market performance is comparable to the U.S. and Japan. Perhaps even more importantly, further analysis reveals for the first time that such overall significant executive pay-performance link is driven by non-Chaebol firms and that no such link exists for Chaebol firms. The evidence is consistent with the recent literature on the nature of Chaebols in Korea and the current corporate governance reform efforts in Korea that are aimed mostly at Chaebol firms.

Suggested Citation

  • Kato, Takao & Kim, Woochan & Lee, Ju Ho, 2005. "Executive Compensation, Firm Performance, and Chaebols in Korea: Evidence from New Panel Data," IZA Discussion Papers 1783, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp1783
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    More about this item

    Keywords

    executive compensation; firm performance; corporate governance; Korea; Chaebols;
    All these keywords.

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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