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Internal Promotion and the Effect of Board Monitoring : A Comparison of Japan and the United States

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  • Meg Sato

    (Australia-Japan Research Centre)

Abstract

This paper analyses two pronounced features of Japanese corporate governance : large corporate boards almost entirely composed of insiders and the tendency to appoint CEOs through internal promotions. It is often argued that Japanese boards are less effective in monitoring CEOs than U.S. boards which tends to be composed of a small number of directors, majority of which are outsiders. I show that Japanese corporate governance exhibits less inefficiencies than U.S. corporate governance. I further discuss the recent changes in Japanese corporate governance and provide theoretical explanation that they do not necessarily enhance board monitoring.

Suggested Citation

  • Meg Sato, 2010. "Internal Promotion and the Effect of Board Monitoring : A Comparison of Japan and the United States," Finance Working Papers 22768, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:22768
    as

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    File URL: http://www.eaber.org/node/22768
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    References listed on IDEAS

    as
    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
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    More about this item

    Keywords

    Board Monitoring; Distortion of Bargaining Surplus; Japanese Corporate Governance; US Corporate Governance; Board Size;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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