Corporate governance and top executive compensation: Evidence from Japanese firms.
Item
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Title
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Corporate governance and top executive compensation: Evidence from Japanese firms.
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Identifier
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AAI9986362
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identifier
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9986362
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Creator
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Mitsudome, Toshiaki.
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Contributor
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Adviser: Joseph Weintrop
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Date
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2000
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Language
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English
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Publisher
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City University of New York.
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Subject
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Business Administration, Accounting | Business Administration, Management
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Abstract
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This dissertation investigates the association between top executive compensation and the corporate governance mechanisms for large Japanese firms. Specifically, I examine whether the level of top executive compensation decreases, as the firm's governance mechanism becomes stronger. I also examine the association between the sensitivity of executive pay to firm performance and various governance structures to test whether incentive contracts are used as a complement or substitute for institutional monitoring.;I impute total amounts of earned compensation from the amounts of income tax paid by individual executives for the period from 1992 to 1996. Using 981 firm-year observations, I find that the level of top executive compensation is negatively associated with keiretsu affiliation, leverage and the percentage of outside directors on the boards. This suggests that as the firm's corporate governance mechanism becomes stronger, the scope for managerial opportunism becomes smaller.;I also find that the sensitivity of top executive compensation to firm performance, as measured by ROA, increases for keiretsu firms and as the percentage of outside directors increases. This result is consistent with the "incentive-complement" hypothesis, which predicts that firms with stronger governance mechanisms can force riskier compensation on their managers. On the other hand, I find that the sensitivity of executive pay to firm performance decreases as leverage increases. This finding is consistent with the "incentive-substitute" hypothesis. Under this hypothesis, firms with stronger governance mechanisms are already monitoring their managers, and, therefore, they rely less on executive incentive contracts to motivate and discipline their managers.;Finally, I find that the level of compensation increases as the level of managerial ownership increases, suggesting that firms with a higher level of managerial ownership experience greater agency problems. I also find that the sensitivity of pay to performance increases as the level of managerial ownership increases for keiretsu firms, but it decreases for non-keiretsu firms. This suggests that top executives of non-keiretsu firms are more likely to entrench themselves as their ownership increases.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
