Power of Tournament Incentives: Evidence from Japanese Corporate Boards

57 Pages Posted: 11 Jan 2018

See all articles by Jeffrey L. Coles

Jeffrey L. Coles

University of Utah - Department of Finance; Arizona State University (ASU) - Finance Department

Konari Uchida

Kyushu University - Faculty of Economics

Date Written: January 11, 2018

Abstract

We find robust evidence that Japanese firms with many inside directors younger than the top manager (junior directors) frequently replace managers. The proportion of junior directors over non-top manager directors is positively associated with firm performance. Given that most Japanese top managers are promoted within the firm from employee/director positions, those results suggest that firms with many junior directors conduct frequent turnovers to provide tournament incentives to young directors and fierce competition among them create value. We do not find evidence that outside directors strengthen the sensitivity of forced turnovers to firm performance. Also, there is no robust evidence that junior directors weaken the sensitivity.

Keywords: Corporate board, Tournament, Inside director, Management turnover

JEL Classification: G30, G34

Suggested Citation

Coles, Jeffrey L. and Uchida, Konari, Power of Tournament Incentives: Evidence from Japanese Corporate Boards (January 11, 2018). Asian Finance Association (AsianFA) 2018 Conference. Available at SSRN: https://ssrn.com/abstract=3100444 or http://dx.doi.org/10.2139/ssrn.3100444

Jeffrey L. Coles

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-587-9093 (Phone)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-4475 (Phone)
480-965-8539 (Fax)

Konari Uchida (Contact Author)

Kyushu University - Faculty of Economics ( email )

6-19-1, Hakozaki
Higashi-ku
Fukuoka, Fukuoka 8128581
Japan

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