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The Relationship between Managerial Compensation and Business Performance in Japan: New Evidence using Micro Data

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  • Hideaki Sakawa

    ()
    (Graduate School of Economics, Osaka University)

  • Naoki Watanabel

    ()
    (Osaka School of International Public Policy)

Abstract

This paper examines the relationship between the level of Japanese business managers' compensation and the quality of corporate governance, and whether weaker governance structures lead to poorer future performance. The conclusions of this paper are as follows. First, the level of Japanese business managers' compensation increases as the percentage of 'old', 'bank' and 'gray' outside directors increases. Compensation also increases with board stockholding and block holding. This suggests weak monitoring by old, bank and gray outside directors and block holders. Second, our results show that firms with weaker governance structures have poorer performance. These results suggest the existence of an overcompensation problem with Japanese managers similarly to the US.

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Bibliographic Info

Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 06-29.

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Length: 20 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:osk:wpaper:0629

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Web page: http://www.econ.osaka-u.ac.jp/
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Keywords: Board of Directors; Corporate Governance; Managers' Compensation; Ownership Structure.;

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  1. Xu, Peng, 1997. "Executive Salaries as Tournament Prizes and Executive Bonuses as Managerial Incentives in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 11(3), pages 319-346, September.
  2. Michael C. Jensen, 1994. "The Modern Industrial Revolution, Exit, And The Failure Of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(4), pages 4-23.
  3. Yermack, David, 1996. "Higher market valuation of companies with a small board of directors," Journal of Financial Economics, Elsevier, vol. 40(2), pages 185-211, February.
  4. Takao Kato, 1999. "Chief Executive Compensation and Corporate Groups in Japan: New Evidence From Micro Data," Macroeconomics 9904010, EconWPA.
  5. Kaplan, Steven N, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 510-46, June.
  6. Ozerturk, Saltuk, 2005. "Board independence and CEO pay," Economics Letters, Elsevier, vol. 88(2), pages 260-265, August.
  7. Kato, Takao & Rockel, Mark, 1992. "Experiences, credentials, and compensation in the Japanese and U.S. managerial labor markets: Evidence from new micro data," Journal of the Japanese and International Economies, Elsevier, vol. 6(1), pages 30-51, March.
  8. Paul L. Joskow & Nancy L. Rose, 1994. "CEO Pay and Firm Performance: Dynamics, Asymmetries, and Alternative Performance Measures," NBER Working Papers 4976, National Bureau of Economic Research, Inc.
  9. Sloan, Richard G., 1993. "Accounting earnings and top executive compensation," Journal of Accounting and Economics, Elsevier, vol. 16(1-3), pages 55-100, April.
  10. Kaplan, Steven N. & Minton, Bernadette A., 1994. "Appointments of outsiders to Japanese boards: Determinants and implications for managers," Journal of Financial Economics, Elsevier, vol. 36(2), pages 225-258, October.
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