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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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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