Executive compensation and firm perfomance in Korea

Executive compensation and firm perfomance in Korea
Kato, TakaoKim, Woochan
executive compensation; corporate governance; Korea
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Series/Report no.
KDI Working Paper Series;04-01
This paper provides the first rigorous econometric estimates on the pay-performance relations for executives in Korea. To do so, we have assembled for the first time a pooled cross-sectional time-series dataset on 251 firms that were included in KOSPI200 for at least two consecutive years from 1998 to 2001. Contrary to a popular belief that Korean corporate governance and the structure of Korean executive compensation is considerably different from elsewhere in the West, we find that cash compensation of Korean executives is statistically significantly related to stock market performance and that the magnitude of the sensitivity of pay to stock market performance is comparable to Japan and the U.S. Moreover, alternative performance measures (such as accounting performance and sales) is found to play a less important role in the determination of Korean executive compensation. Finally, we find evidence that non-Chaebol firms structure their executive compensation so as to reward their executives for improving shareholder value more so than Chaebol firms. The evidence is consistent with the recent literature on the nature of Chaebols in Korea.
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