Ownership, boards of directors, and executive turnover in Japan

This study examines how shareholder/manager conflicts that arise from the separation of ownership and control are solved in Japan. Many of the most important forces that align the interest of shareholders in the United States, such as the takeover market and the presence of many outsiders on corporate boards, are very rare in Japan, while other institutions unknown in the United States, such as keiretsu, large banks, and cross-shareholdings, sometimes help to resolve shareholder/manager conflicts.; The turnover and succession of the top executive are the most visible corporate governance events. This study examines the likelihood of disciplinary turnover and outside succession of the top executive as a measure of corporate governance activity.; This study extends the literature on corporate governance in at least two ways. First, the effects of monitoring by banks and by nonfinancial firms is different. Monitoring by nonfinancial firms increases the likelihood of forced turnover and outside succession, similar to monitoring by large shareholders in the United States. Monitoring by banks, however, decreases the likelihood of forced turnover and outside succession.; The second way this study extends the literature on corporate governance in Japan is by examining the effect of firm size on the effectiveness of monitoring. Monitoring by banks has a greater influence on the likelihood of forced turnover and outside succession in larger firms while monitoring by nonfinancial firms has a greater influence on the likelihood of forced turnover and outside succession in smaller firms.