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Chief Executive Compensation and Corporate Groups in Japan: New Evidence from Micro Data

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  • Takao Kato

Abstract

This paper begins with addressing a simple empirical question: how much Japanese executives earn. By presenting the first systematic review of prior studies reporting the mean level of Japanese executive compensation, I conclude that the best available answer to this empirical question is that the average salary and bonus of CEOs of large Japanese firms during 1980s is between 30 to 45 million yen, roughly one third of what the US counterparts earn in salary and bonus. In reaching this conclusion, I also identify three major data sources available for empirical studies of Japanese executive compensation and discuss the strengths and weaknesses of each data source. The rest of the paper is devoted to a more analytical question: What is the relationship between executive compensation and financial corporate groups in Japan, an issue that has not been previously investigated. By using micro data on CEO compensation of 154 large Japanese firms consisting of 116 group-affiliated firms and 38 independent firms, I find that CEOs of group firms earn 20 to 30 % less than those of independent firms, after controlling for shareholder returns, accounting measures of profitability, alternative firm objective measures such as size and capital investment, and personal characteristics of CEOs. I also find that alternative firm objectives, measured by employment and capital investment, are more relevant to the determination of CEO compensation of group firms than that of independent firms. These findings are consistent with the recent contributions in the literature of Japanese corporate governance stressing the role of banks as monitoring agents and suggesting that managers of group firms represent not only the interest of shareholders but the interest of main banks.

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  • 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.
  • Handle: RePEc:lev:wrkpap:wp_117
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    1. 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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    3. 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.
    4. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
    5. Takao Kato, Larry W. Taylor, 1994. "The Timing of Promotion to Top Management in the U.S. and Japan: A Duration Analysis," Economics Working Paper Archive wp_121, Levy Economics Institute.
    6. David E. Weinstein & Yishay Yafeh, 1998. "On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan," Journal of Finance, American Finance Association, vol. 53(2), pages 635-672, April.
    7. Lichtenberg, Frank R. & Pushner, George M., 1994. "Ownership structure and corporate performance in Japan," Japan and the World Economy, Elsevier, vol. 6(3), pages 239-261, October.
    8. Kato, Takao & Hebner, Kevin J., 1997. "Insider trading and executive compensation: Evidence from the U.S. and Japan," International Review of Economics & Finance, Elsevier, vol. 6(3), pages 223-237.
    9. Rebick Marcus E., 1995. "Rewards in the Afterlife: Late Career Job Placements as Incentives in the Japanese Firm," Journal of the Japanese and International Economies, Elsevier, vol. 9(1), pages 1-28, March.
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    11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    12. Steven N. Kaplan, 1992. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the U.S," NBER Working Papers 4065, National Bureau of Economic Research, Inc.
    13. Randall Morck & Masao Nakamura, 1999. "Banks and Corporate Control in Japan," Journal of Finance, American Finance Association, vol. 54(1), pages 319-339, February.
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