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

Hideaki Sakawa
Naoki Watanabel

February 2009


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.

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