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EXECUTIVE PAY AND SUCCESSION IN JAPAN: DIVERGENT EFFECTS OF FOREIGN AND DOMESTIC OWNERSHIP

By Parthiban David, Toru Yoshikawa and Koji Oyanagi

Abstract

We study the effect of ownership structure on executive pay and succession in Japanese corporations. We find differences in the effects of domestic and foreign ownership that are based on the nature of owners ’ relationships with managers. Foreign ownership reduces executive pay and enhances the likelihood of executive succession when firms underperform. Domestic ownership has no effect. Our results suggest that foreign owners exercise governance according to an agency theory logic of favoring explicit controls, while domestic owners do not favor explicit controls in keeping with a stewardship theory logic of empowerment. 3 Corporate governance is defined as “the ways in which suppliers of finance to corporations assure themselves of getting a return on their investments ” (Shleifer & Vishny, 1997: 737). Two diametrically opposed governance models have been used in strategy research to describe the relationship between owners and managers: agency theory (Jensen & Meckling, 1976) and stewardship theory (Davis, Schoorman, & Donaldson, 1997). Agency theory’s key assumptions are that managers pursue their self-interest when their goals diverge from those of owners and that explicit control structures are needed to curb potential managerial opportunism

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.195.6839
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