TY - JOUR
T1 - Executive pay in Japan
T2 - The role of bank-appointed monitors and the main bank relationship
AU - Abe, Naohito
AU - Gaston, Noel
AU - Kubo, Katsuyuki
N1 - Funding Information:
The authors would like to thank Jeff Kline, Hodaka Morita, Kazunori Suzuki, Peng Xu, Yishay Yafeh, seminar participants at the Korean Development Institute, and an anonymous referee for their valuable comments. In addition, we would like to acknowledge the assistance of Yoko Oguro and Mayumi Okado with data collection. Noel Gaston would like to acknowledge the hospitality and support provided by the Center for Economic Institutions at Hitotsubashi University and the Research Institute for Capital Formation at the Development Bank of Japan . Katsuyuki Kubo would like to thank the Ishii Memorial Securities Research Promotion Foundation for its financial support. Naturally, the final responsibility for all errors and omissions rests with the authors alone.
PY - 2005/8
Y1 - 2005/8
N2 - A feature of tournament models is that executive compensation is not independent of the wages paid at lower levels of the corporate hierarchy. Agency models show that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine elements of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 55 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.
AB - A feature of tournament models is that executive compensation is not independent of the wages paid at lower levels of the corporate hierarchy. Agency models show that compensation based on firm performance is a means by which incentives can be provided to executives once a promotion tournament has been resolved. In this paper, we combine elements of both models and show that the existence of an outsider who monitors the firm's activities will lower the sensitivity of pay to firm performance for top executives and reduce the importance of tournament-based incentives. Using panel data for 55 Japanese electronics firms, we find support for the notion that bank-appointed Board members help monitor top executives and that tournament considerations are a particularly important feature of executive compensation in Japan.
KW - Agency
KW - Executive pay
KW - Main Bank relationship
KW - Monitoring
KW - Tournaments
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U2 - 10.1016/j.japwor.2004.03.003
DO - 10.1016/j.japwor.2004.03.003
M3 - Article
AN - SCOPUS:13844271158
SN - 0922-1425
VL - 17
SP - 371
EP - 394
JO - Japan and the World Economy
JF - Japan and the World Economy
IS - 3
ER -