Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-03T01:46:42.255Z Has data issue: false hasContentIssue false
  • English
  • Français

CEO Compensation in Japan: Why So Different from the United States?

Published online by Cambridge University Press:  08 August 2018

Luyao Pan  and
Xianming Zhou
Get access Rights & Permissions [Opens in a new window]

Abstract

In Mar. 2010, Japan’s financial regulator implemented the country’s first legislation concerning the disclosure of director compensation for named individuals. Using the first publicly available data for Japanese executives, we document direct evidence on the level, structure, and mechanisms of chief executive officer (CEO) compensation in Japan and perform a matched-sample comparison between Japan and the United States. In contrast to the findings of recent studies showing that international differentials in CEO pay have largely disappeared since the mid-2000s, our results show strikingly large differences between the Japanese and American systems that are difficult to explain by differences in conventional incentive contracts.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 53 , Issue 5 , October 2018 , pp. 2261 - 2292
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

1

We gratefully acknowledge financial support from the University of Hong Kong Seed Funding Programme and the Research School Grants Scheme at the Australian National University. We have benefited from helpful comments from Jarrad Harford (the editor), Po-Hsuan Hsu, Tse-Chun Lin, Neil Pearson, Xin Wang, Steven Xiangdong Wei, and Takeshi Yamada. We wish to thank an anonymous referee for insightful comments and constructive suggestions that significantly improved this article. All errors are our own.

References

Aggarwal, R. K., and Samwick, A. A.. “The Other Side of Trade-Off: The Impact of Risk on Executive Compensation.” Journal of Political Economy, 107 (1999), 65–105.Google Scholar
Amemiya, T.“Regression Analysis When the Dependent Variable Is Truncated Normal.” Econometrica, 41 (1973), 997–1016.Google Scholar
Aoki, M. Information, Incentives and Bargaining in the Japanese Economy. New York, NY: Cambridge University Press (1988).Google Scholar
Aoki, M.; Jackson, G.; and Miyajima, H.. Corporate Governance in Japan: Institutional Change and Organizational Diversity. Oxford, UK: Oxford University Press (2007).Google Scholar
Basu, S.; Hwang, L.-S.; Mitsudome, T.; and Weintrop, J.. “Corporate Governance, Top Executive Compensation and Firm Performance in Japan.” Pacific-Basin Finance Journal, 15 (2007), 56–79.Google Scholar
Bebchuk, L. A.; Fried, J. M.; and Walker, D. I.. “Managerial Power and Rent Extraction in the Design of Executive Compensation.” University of Chicago Law Review, 69 (2002), 751–846.Google Scholar
Belsley, D. A.; Kuh, E.; and Welsch, R. E.. Regression Diagnostics: Identifying Influential Data and Sources of Collinearity. New York, NY: Wiley & Sons (1980).Google Scholar
Chhaochharia, V., and Grinstein, Y.. “CEO Compensation and Board Structure.” Journal of Finance, 64 (2009), 231–261.Google Scholar
Chizema, A., and Shinozawa, Y.. “The ’Company with Committees’: Change or Continuity in Japanese Corporate Governance?” Journal of Management Studies, 49 (2012), 77–101.Google Scholar
Colcera, E. The Market for Corporate Control in Japan: M&As, Hostile Takeovers and Regulatory Framework. New York, NY: Springer (2007).Google Scholar
Conyon, M. J.; Fernandes, N.; Ferreira, M. A.; Matos, P.; and Murphy, K. J.. “The Executive Compensation Controversy: A Transatlantic Analysis.” In Productivity, Profits and Pay, Part 1, Boeri, T., Lucifora, C., and Murphy, K. J., eds. Oxford: Oxford University Press (2013).Google Scholar
Conyon, M. J., and Murphy, K. J.. “The Prince and the Pauper? CEO Pay in the United States and United Kingdom.” Economic Journal, 110 (2000), 640–671.Google Scholar
Craighead, J. A.; Magnan, M. L.; and Thorne, L.. “The Impact of Mandated Disclosure on Performance-Based CEO Compensation.” Contemporary Accounting Research, 21 (2004), 369–398.Google Scholar
Daiwa Institute of Research. “A Case Analysis of Executive Compensation: The Disclosure of Executive Compensation of Topixcore 30 Index Constituents.” Consultation Report (2010).Google Scholar
Fernandes, N.; Ferreira, M. A.; Matos, P.; and Murphy, K. J.. “Are U.S. CEOs Paid More? New International Evidence.” Review of Financial Studies, 26 (2013), 323–367.Google Scholar
Gabaix, X., and Landier, A.. “Why Has CEO Pay Increased So Much?” Quarterly Journal of Economics, 123 (2008), 49–100.Google Scholar
Garen, J. E.“Executive Compensation and Principal-Agent Theory.” Journal of Political Economy, 102 (1994), 1175–1199.Google Scholar
Greene, W. H. Econometric Analysis. Upper Saddle River, NJ: Prentice Hall (2003).Google Scholar
Hall, B. J., and Liebman, J. B.. “Are CEOs Really Paid Like Bureaucrats?” Quarterly Journal of Economics, 113 (1998), 653–691.Google Scholar
Heckman, J. J.“Sample Selection Bias as a Specification Error.” Econometrica, 47 (1979), 153–161.Google Scholar
Jensen, M. C., and Murphy, K. J.. “Performance Pay and Top-Management Incentives.” Journal of Political Economy, 98 (1990), 225–264.Google Scholar
Joh, S. W.“Strategic Managerial Incentive Compensation in Japan: Relative Performance Evaluation and Product Market Collusion.” Review of Economics and Statistics, 81 (1999), 303–313.Google Scholar
Kang, J.-K., and Shivdasani, A.. “Firm Performance, Corporate Governance, and Top Executive Turnover in Japan.” Journal of Financial Economics, 38 (1995), 29–58.Google Scholar
Kaplan, S. N.“Top Executive Rewards and Firm Performance: A Comparison of Japan and the United States.” Journal of Political Economy, 102 (1994), 510–546.Google Scholar
Kato, H. K.; Lemmon, M.; Luo, M.; and Schallheim, J.. “An Empirical Examination of the Costs and Benefits of Executive Stock Options: Evidence from Japan.” Journal of Financial Economics, 78 (2005), 435–461.Google Scholar
Kato, T.“Chief Executive Compensation and Corporate Groups in Japan: New Evidence from Micro Data.” International Journal of Industrial Organization, 15 (1997), 455–467.Google Scholar
Kato, T., and Kubo, K.. “CEO Compensation and Firm Performance in Japan: Evidence from New Panel Data on Individual CEO Pay.” Journal of the Japanese and International Economies, 20 (2006), 1–19.Google Scholar
Kato, T., and Rockel, M.. “Experiences, Credentials, and Compensation in the Japanese and US Managerial Labor Markets: Evidence from New Micro Data.” Journal of the Japanese and International Economies, 6 (1992), 30–51.Google Scholar
Kubo, K.“Executive Compensation Policy and Company Performance in Japan.” Corporate Governance: An International Review, 13 (2005), 429–436.Google Scholar
Lennox, C. S.; Francis, J. R.; and Wang, Z.. “Selection Models in Accounting Research.” Accounting Review, 87 (2012), 589–616.Google Scholar
Little, R. J.“A Note about Models for Selectivity Bias.” Econometrica, 53 (1985), 1469–1474.Google Scholar
Meng, R.; Ning, X.; Zhou, X.; and Zhu, H.. “Do ESOPs Enhance Firm Performance? Evidence from China’s Reform Experiment.” Journal of Banking and Finance, 35 (2011), 1541–1551.Google Scholar
Merhebi, R.; Pattenden, K.; Swan, P. L.; and Zhou, X.. “Australian Chief Executive Officer Remuneration: Pay and Performance.” Accounting and Finance, 46 (2006), 481–497.Google Scholar
Murphy, K. J.“Corporate Performance and Managerial Remuneration: An Empirical Analysis.” Journal of Accounting and Economics, 7 (1985), 11–42.Google Scholar
Newey, W. K.“Conditional Moment Restrictions in Censored and Truncated Regression Models.” Econometric Theory, 17 (2001), 863–888.Google Scholar
Rosen, S.“Contracts and the Market for Executives.” In Contract Economics, Werin, L. and Wijkander, H., eds. Oxford: Blackwell (1992).Google Scholar
Shuto, A.“Executive Compensation and Earnings Management: Empirical Evidence from Japan.” Journal of International Accounting, Auditing and Taxation, 16 (2007), 1–26.Google Scholar
Weinstein, D. E., and Yafeh, Y.. “On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan.” Journal of Finance, 53 (1998), 635–672.Google Scholar
Yermack, D.“Do Corporations Award CEO Stock Options Effectively?” Journal of Financial Economics, 39 (1995), 237–269.Google Scholar
Yoshikawa, T.; Rasheed, A. A.; and Del Brio, E. B.. “The Impact of Firm Strategy and Foreign Ownership on Executive Bonus Compensation in Japanese Firms.” Journal of Business Research, 63 (2010), 1254–1260.Google Scholar
Zheng, L., and Zhou, X.. “Executive Stock Options and Manipulated Stock-Price Performance.” International Review of Finance, 12 (2012), 249–281.Google Scholar