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

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Author Info
Takao Kato () (Colgate University, Columbia University and IZA Bonn)
Woochan Kim () (KDI School of Public Policy and Management)
Ju Ho Lee () (KDI School of Public Policy and Management)

Additional information is available for the following registered author(s):

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1783.

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Length: 34 pages
Date of creation: Sep 2005
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Handle: RePEc:iza:izadps:dp1783

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Related research
Keywords: executive compensation; firm performance; corporate governance; Korea; Chaebols;

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Find related papers by JEL classification:
M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; 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, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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    Other versions:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Takao Kato & Woochan Kim & Ju Ho Lee, 2005. "Executive Compensation, Firm Performance, and Chaebols in Korea: Evidence from New Panel Data," IZA Discussion Papers 1783, Institute for the Study of Labor (IZA). [Downloadable!]
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