Hostname: page-component-586b7cd67f-t7czq Total loading time: 0 Render date: 2024-11-29T02:03:49.076Z Has data issue: false hasContentIssue false
  • English
  • Français

Shareholder Composition and Managerial Compensation

Published online by Cambridge University Press:  16 December 2016

Shinya Shinozaki ,
Hiroshi Moriyasu  and
Konari Uchida
Get access Rights & Permissions [Opens in a new window]

Abstract

Stock options are used only sparingly in Japan. Japanese firms are more likely to adopt new stock option plans when they are more (less) owned by arms-length investors (stable and controlling shareholders). Those firms have significantly more independent boards and pay higher dividends surrounding the adoption year than their industry peers. These results suggest that firms adopting stock options endeavor to meet demands for good governance practice from arms-length shareholders and to follow good governance practices in other dimensions. The coexistence of arms-length, stable, and controlling shareholders generates a situation in which stock options are not widely used in Japan.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 5 , October 2016 , pp. 1719 - 1738
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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.)

References

Aggarwal, R.; Erel, I.; Ferreira, M.; and Matos, P.. “Does Governance Travel around the World? Evidence from Institutional Investors.” Journal of Financial Economics, 100 (2011), 154–181.CrossRefGoogle Scholar
Baber, W. R.; Janakiraman, S. N.; and Kang, S.-H.. “Investment Opportunities and the Structure of Executive Compensation.” Journal of Accounting and Economics, 21 (1996), 297–318.CrossRefGoogle Scholar
Berry, T. K.; Fields, L. P.; and Wilkins, M. S.. “The Interaction among Multiple Governance Mechanisms in Young Newly Public Firms.” Journal of Corporate Finance, 12 (2006), 449–466.CrossRefGoogle Scholar
Billett, M. T.; Mauer, D. C.; and Zhang, Y.. “Stockholder and Bondholder Wealth Effects of CEO Incentive Grants.” Financial Management, 39 (2010), 463–487.CrossRefGoogle Scholar
Booth, J. R.; Cornett, M. M.; and Tehranian, H.. “Boards of Directors, Ownership, and Regulation.” Journal of Banking and Finance, 26 (2002), 1973–1996.CrossRefGoogle Scholar
Chen, K. C. W.; Chen, Z.; and Wei, K. C. J.. “Legal Protection of Investors, Corporate Governance, and the Cost of Equity Capital.” Journal of Corporate Finance, 15 (2009), 273–289.CrossRefGoogle Scholar
Cohen, R.; Hall, B.; and Viceira, L.. “Do Executive Stock Options Encourage Risk-Taking?” Working Paper, Harvard Business School (2000).Google Scholar
Coles, J. L.; Daniel, N. D.; and Naveen, L.. “Managerial Incentives and Risk-Taking.” Journal of Financial Economics, 79 (2006), 431–468.CrossRefGoogle Scholar
Cuny, C. J.; Martin, G. S.; and Puthenpurackal, J. J.. “Stock Options and Total Payout.” Journal of Financial and Quantitative Analysis, 44 (2009), 391–410.CrossRefGoogle Scholar
DeFusco, R.; Johnson, R.; and Zorn, T.. “The Effect of Executive Stock Option Plans on Stockholders and Bondholders.” Journal of Finance, 45 (1990), 617–627.CrossRefGoogle Scholar
Dong, Z.; Wang, C.; and Xie, F.. “Do Executive Stock Options Induce Excessive Risk Taking?” Journal of Banking and Finance, 34 (2010), 2518–2529.CrossRefGoogle Scholar
Easterbrook, F. H.“Two Agency-Cost Explanations of Dividends.” American Economic Review, 74 (1984), 650–659.Google Scholar
Eisenberg, T.; Sundgren, S.; and Wells, M.. “Larger Board Size and Decreasing Firm Value in Small Firms.” Journal of Financial Economics, 48 (1998), 35–54.CrossRefGoogle Scholar
Fenn, G. W., and Liang, N.. “Corporate Payout Policy and Managerial Stock Incentives.” Journal of Financial Economics, 60 (2001), 45–72.CrossRefGoogle Scholar
Gaver, J. J., and Gaver, K. M.. “Additional Evidence on the Association between the Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies.” Journal of Accounting and Economics, 16 (1993), 125–160.CrossRefGoogle Scholar
Guay, W. R.“The Sensitivity of CEO Wealth to Equity Risk: An Analysis of the Magnitude and Determinants.” Journal of Financial Economics, 53 (1999), 43–71.CrossRefGoogle Scholar
Jensen, M. C.“Agency Cost of Free Cash Flow, Corporate Finance, and Takeovers.” American Economic Review, 76 (1986), 323–329.Google Scholar
Jensen, M. C., and Meckling, W. H.. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, 3 (1976), 305–360.CrossRefGoogle Scholar
John, T. A., and John, K.. “Top-Management Compensation and Capital Structure.” Journal of Finance, 48 (1993), 949–974.Google Scholar
Kaplan, S. N.“Top Executive Rewards and Firm Performance: A Comparison of Japan and the Unites States.” Journal of Political Economy, 102 (1994), 510–546.CrossRefGoogle 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.CrossRefGoogle 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.CrossRefGoogle Scholar
Kim, H.; Yasuda, Y.; and Hasegawa, N.. “Stock Option Awards: Effects on Firm Performance and Risk-Taking during Japanese Corporate Governance Reforms.” Available at http://ssrn.com/abstract=2136944 (2012).CrossRefGoogle Scholar
Lambert, R. A.; Lanen, W. N.; and Larcker, D. F.. “Executive Stock Option Plans and Corporate Dividend Policy.” Journal of Financial and Quantitative Analysis, 24 (1989), 409–425.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; and Shleifer, A.. “Corporate Ownership around the World.” Journal of Finance, 54 (1999), 471–517.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. “Agency Problems and Dividend Policies around the World.” Journal of Finance, 55 (2000), 1–33.CrossRefGoogle Scholar
Lee, D. W., and Park, K. S.. “Does Institutional Activism Increase Shareholder Wealth? Evidence from Spillovers on Non-Target Companies.” Journal of Corporate Finance, 15 (2009), 488–504.CrossRefGoogle Scholar
Matsunaga, S. R.“The Effects of Financial Reporting Costs on the Use of Employee Stock Options.” Accounting Review, 70 (1995), 1–26.Google Scholar
Mehran, H.“Executive Compensation Structure, Ownership, and Firm Performance.” Journal of Financial Economics, 38 (1995), 163–184.CrossRefGoogle Scholar
Mehrotra, V.; Morck, R.; Shim, J.; and Wiwattanakantang, Y.. “Adoptive Expectations: Rising Sons in Japanese Family Firms.” Journal of Financial Economics, 108 (2013), 840–854.CrossRefGoogle Scholar
Mehrotra, V.; van Schaik, D.; Spronk, J.; and Steenbeek, O.. “Creditor-Focused Corporate Governance: Evidence from Mergers and Acquisitions in Japan.” Journal of Financial and Quantitative Analysis, 46 (2011), 1051–1072.CrossRefGoogle Scholar
Morck, R., and Nakamura, M.. “Banks and Corporate Control in Japan.” Journal of Finance, 54 (1999), 319–339.CrossRefGoogle Scholar
Morck, R.; Nakamura, M.; and Shivdasani, A.. “Banks, Ownership Structure, and Firm Value in Japan.” Journal of Business, 73 (2000), 539–567.CrossRefGoogle Scholar
Ryan, H. E. J., and Wiggins, R. A. III. “The Influence of Firm- and Manager-Specific Characteristics on the Structure of Executive Compensation.” Journal of Corporate Finance, 7 (2001), 101–123.CrossRefGoogle Scholar
Sheard, P.“The Main Bank System and Corporate Monitoring and Control in Japan.” Journal of Economic Behavior and Organization, 11 (1989), 399–422.CrossRefGoogle Scholar
Shleifer, A., and Vishny, R. W.. “A Survey of Corporate Governance.” Journal of Finance, 52 (1997), 737–783.CrossRefGoogle Scholar
Smith, C. W. J., and Watts, R. L.. “The Investment Opportunity Set and Corporate Financing, Dividend, and Compensation Policies.” Journal of Financial Economics, 32 (1992), 263–292.CrossRefGoogle Scholar
Uchida, K.“Determinants of Stock Option Use by Japanese Companies.” Review of Financial Economics, 15 (2006), 251–269.CrossRefGoogle Scholar
Uchida, K.“Does Corporate Board Downsizing Increase Shareholder Value? Evidence from Japan.” International Review of Economics and Finance, 20 (2011), 562–573.CrossRefGoogle Scholar
Yermack, D.“Do Corporations Award CEO Stock Options Effectively?” Journal of Financial Economics, 39 (1995), 237–269.CrossRefGoogle Scholar
Yermack, D.“Higher Valuations of Companies with a Small Board of Directors.” Journal of Financial Economics, 40 (1996), 185–212.CrossRefGoogle Scholar