The Effect of Executive Bonuses and Manager Shareholding Ratio on Corporate Scandals

Abstract

This paper analyzes how to suppress the incentive for management to carry out illegal acts through both the number of shareholdings and the compensation agreement. Specifically, if management owns shares beyond the optimal shareholding ratio, corporate scandals can be kept to a minimum. In other words, it is possible to minimize corporate scandals by allocating shares to management. However, in a situation where management owns a lot of shares, it is not possible to maximize the corporate value the owner desires. Thus, in the case where a person with a low shareholding is appointed as top manager, it is better to transfer shares to the top management by stock options etc. than by managers' salaries to discourage illegal acts.