Managerial Compensation, Corporate Governance, and Business Performance in Japan: Evidence Using New Micro Data

This paper examines the relations between the disciplinary role of Japanese relationship-oriented corporate governance mechanisms, such as keiretsu memberships and bank-appointed directors, and pay-performance sensitivity in Japan. Previous studies show that pay-performance sensitivity is positive and almost the same as in a market-oriented system like that of the USA. However, under the Japanese relationship-oriented system, pay-performance sensitivity may be controlled by financial keiretsu ties and bank-appointed directors. We find that the disciplinary mechanism of keiretsu memberships and bank-appointed monitors did not function well in Japan in the 1990s.