Does the Effectiveness of Corporate Governance Restrain Excessive Executive Compensation? Monitoring Boards and Executive Compensation in Japan

Does the Effectiveness of Corporate Governance Restrain Excessive Executive Compensation? Monitoring Boards and Executive Compensation in Japan | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Does the Effectiveness of Corporate Governance Restrain Excessive Executive Compensation? Monitoring Boards and Executive Compensation in Japan Mao Mukai, Shota Otomasa This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6951332/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study examines how differences in corporate governance among Japanese firms affect executive compensation contracts and clarifies the effectiveness of the monitoring board structure typical of the United States (U.S.). Additionally, this study investigates how the organizational forms chosen by Japanese companies contribute to the establishment of efficient executive compensation contracts. Pooled ordinary least squares (OLS) and difference-in-difference (DID) analyses revealed two key findings. First, companies that transition to an audit and supervisory committee structure experience a decrease in excess executive compensation. This finding suggests that, in companies with an audit and supervisory committee, a monitoring board structure functions effectively to suppress both the total compensation and excess compensation paid to executives. Second, this reduction in excess compensation is more pronounced in companies that paid positive excess compensation prior to the transition to an audit and supervisory committee. This result implies that among transitioning firms, those overpaying their executives experienced a greater decline in excess compensation. These findings suggest that a U.S.-style monitoring board structure enables the design of executive compensation contracts that mitigate conflicts of interest between executives and shareholders. JEL Classifications: M41; J33 ; G32 executive compensation corporate governance organizational forms monitoring boards Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-6951332","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":485678877,"identity":"5aaa7a8a-7289-4d3e-8d16-160be4f79479","order_by":0,"name":"Mao Mukai","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA8UlEQVRIiWNgGAWjYFACNgaGBCDFzwPmSUBFeYjQItlDkhYQMDhDrLN0Z6QlfniYYydnfObws4c/aiwYDA4wP/zAIHMHpxazG2mHJRK3JRubnW0zN+Y5JgHUwmYswcDzDI+W9AagFubEbecZzKQZ2CTqNxxgMAP65TA+Lc0/ErfVJ27uZ/8m+eMfyBb2bwS0pB0D2nI4cQNvj5kEbxtICw8BW848S7NI3HbcWOLMmTJp3j4JBsnDPMUSCfj8cjzN+ObPbdVy/D3p2yR/fKtj4DvevvHDxx7cIYYFMANxYs8BUrSAwQ/StYyCUTAKRsGwBQATuVJEy6aD9QAAAABJRU5ErkJggg==","orcid":"","institution":"Kansai University","correspondingAuthor":true,"prefix":"","firstName":"Mao","middleName":"","lastName":"Mukai","suffix":""},{"id":485678879,"identity":"eb477e4c-b4dd-405f-8ac8-ee77c043d971","order_by":1,"name":"Shota Otomasa","email":"","orcid":"","institution":"Kansai University","correspondingAuthor":false,"prefix":"","firstName":"Shota","middleName":"","lastName":"Otomasa","suffix":""}],"badges":[],"createdAt":"2025-06-22 20:53:12","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-6951332/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-6951332/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":86914504,"identity":"4677189c-7316-4524-b1db-1af01fe0c9c6","added_by":"auto","created_at":"2025-07-17 06:06:34","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":531767,"visible":true,"origin":"","legend":"","description":"","filename":"RQFAMANUSCRIPT.pdf","url":"https://assets-eu.researchsquare.com/files/rs-6951332/v1_covered_a640c0f3-23a0-4704-b7ad-9e9111dcd787.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"Does the Effectiveness of Corporate Governance Restrain Excessive Executive Compensation? Monitoring Boards and Executive Compensation in Japan","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"executive compensation, corporate governance, organizational forms, monitoring boards","lastPublishedDoi":"10.21203/rs.3.rs-6951332/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6951332/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study examines how differences in corporate governance among Japanese firms affect executive compensation contracts and clarifies the effectiveness of the monitoring board structure typical of the United States (U.S.). Additionally, this study investigates how the organizational forms chosen by Japanese companies contribute to the establishment of efficient executive compensation contracts. Pooled ordinary least squares (OLS) and difference-in-difference (DID) analyses revealed two key findings. First, companies that transition to an audit and supervisory committee structure experience a decrease in excess executive compensation. This finding suggests that, in companies with an audit and supervisory committee, a monitoring board structure functions effectively to suppress both the total compensation and excess compensation paid to executives. Second, this reduction in excess compensation is more pronounced in companies that paid positive excess compensation prior to the transition to an audit and supervisory committee. This result implies that among transitioning firms, those overpaying their executives experienced a greater decline in excess compensation. These findings suggest that a U.S.-style monitoring board structure enables the design of executive compensation contracts that mitigate conflicts of interest between executives and shareholders.\u003c/p\u003e\n\u003cp\u003eJEL Classifications: M41; J33 ; G32\u003c/p\u003e","manuscriptTitle":"Does the Effectiveness of Corporate Governance Restrain Excessive Executive Compensation? Monitoring Boards and Executive Compensation in Japan","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-07-17 05:58:26","doi":"10.21203/rs.3.rs-6951332/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"38f7da79-3c87-4441-b7a7-99496ffeacd0","owner":[],"postedDate":"July 17th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2025-07-17T05:58:26+00:00","versionOfRecord":[],"versionCreatedAt":"2025-07-17 05:58:26","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-6951332","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-6951332","identity":"rs-6951332","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}