Strategic Managerial Incentive Compensation In Japan: Relative Performance Evaluation And Product Market Collusion
In an oligopolistic product market, shareholders strategically use information on rival firms' performances when designing management-incentive contracts. When shareholders use industry performance information through relative performances evaluation (RPE), they evaluate their manager's effort more easily, but hinder collusive behavior in the product market. However, when compensation is positively linked to the industry performance through strategic group performance evaluation (SGPE), the credibility of a manager's commitment to product market collusion increases, and the sustainability of a collusive outcome increases. I test how industry performance affects management-incentive compensation using the data from 796 Japanese firms during the period 1968 to 1992. The results show that management compensation is positively linked to industry profit, suggesting the use of SGPE in management-incentive compensation. Cross-sectional analysis shows that the positive effect of industry profit on management compensation is higher in competitive industries than in concentrated industries. The positive effect is greater in slow-growing industries than in fast-growing industries. Empirical tests incorporating the risk component method show the same results. These results are consistent with the argument that, in a growing market or in a concentrated market, the value of SGPE diminishes as the value of commitment to collusion diminishes. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 81 (1999)
Issue (Month): 2 (May)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535|
References listed on IDEAS
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.:
- Barro, Jason R. & Barro, Robert J., 1990.
"Pay, Performance, and Turnover of Bank CEOs,"
3451300, Harvard University Department of Economics.
- Severin Boreinstein & Andrea Shepard, 1996.
"Dynamic Pricing in Retail Gasoline Markets,"
RAND Journal of Economics,
The RAND Corporation, vol. 27(3), pages 429-451, Autumn.
- Borenstein, S. & Shepard, A., 1993. "Dynamic Pricing in Retail Gazoline Markets," Papers 93-22, California Davis - Institute of Governmental Affairs.
- Severin Borenstein & Andrea Shepard, 1993. "Dynamic Pricing in Retail Gasoline Markets," NBER Working Papers 4489, National Bureau of Economic Research, Inc.
- Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 433-446.
- Caillaud, Bernard & Jullien, B & Picard, P, 1995.
"Competing Vertical Structures: Precommitment and Renegotiation,"
Econometric Society, vol. 63(3), pages 621-646, May.
- Caillaud Bernard & Jullien Bruno & Picard Pierre, 1991. "Competing vertical structures : precommitment and renegotiation," CEPREMAP Working Papers (Couverture Orange) 9125, CEPREMAP.
- Michael L. Katz., 1991.
"Game-Playing Agents: Unobservable Contracts as Precommitments,"
Economics Working Papers
91-172, University of California at Berkeley.
- Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
- Katz, Michael L., 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," Department of Economics, Working Paper Series qt79b870w0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Sappington, David & Demski, Joel S., 1983. "Multi-agent control in perfectly correlated environments," Economics Letters, Elsevier, vol. 13(4), pages 325-330.
- Masahiko Aoki, 2013.
"Toward an Economic Model of the Japanese Firm,"
in: Comparative Institutional Analysis, chapter 18, pages 315-341
Edward Elgar Publishing.
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-864, October.
- Takao Kato, 1999.
"Chief Executive Compensation and Corporate Groups in Japan: New Evidence From Micro Data,"
- Kato, Takao, 1997. "Chief executive compensation and corporate groups in Japan: New evidence from micro data," International Journal of Industrial Organization, Elsevier, vol. 15(4), pages 455-467, July.
- Takao Kato, 1999. "Chief Executive Compensation and Corporate Groups in Japan: New Evidence From Micro Data," Macroeconomics 9904010, EconWPA.
- Takao Kato, 1994. "Chief Executive Compensation and Corporate Groups in Japan: New Evidence from Micro Data," Economics Working Paper Archive wp_117, Levy Economics Institute.
- Murphy, Kevin J., 1985. "Corporate performance and managerial remuneration : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 11-42, April.
- Choi, Yoon K., 1993. "Managerial incentive contracts with a production externality," Economics Letters, Elsevier, vol. 42(1), pages 37-42.
- 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 510-546, June.
- Jensen, Michael C & Murphy, Kevin J, 1990.
"Performance Pay and Top-Management Incentives,"
Journal of Political Economy,
University of Chicago Press, vol. 98(2), pages 225-264, April.
When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:81:y:1999:i:2:p:303-313. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If references are entirely missing, you can add them using this form.