Universal Journal of Accounting and Finance Vol. 8(1), pp. 1 - 20
DOI: 10.13189/ujaf.2020.080101
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Short-Termism, Excessive Executive Compensation, and the Discounting Traits of Managers - by Using fMRI Experiment

Hidetoshi Yamaji 1,*, Masatoshi Gotoh 2, Yoshinori Yamakawa 3
1 Graduate School of Management, Kyoto University, Japan
2 Graduate School of Business Administration, Kobe University, Japan
3 NTT Data Institute of Management Consulting, Inc., Tokyo, Japan


It can be said that short-termism and excessive executive compensation are drawing critical and negative attention in recent years, judging from famous politician's lecture and the passage of law forcing to publicly disclose the ratio of the compensation of the chief executive officer (CEO) to the median compensation of that company's employees. We assume that these management problems are sharpened by human instinctive discounting behavior. By brain experiment of discounting behavior (neuro-science method), we scientifically reveal that stimuli like globalization mobilize new brain parts (precuneus, IPL, TPJ), sharpen human discounting behavior and in turn sharpen the management problems. The research results show that human beings predict other people's discounting behavior more sharply than their own by additionally activating new parts of brain. This in turn will sharpen their discount behavior. This chain of discounting behavior and activation of new brain parts becomes prominent in the globalization of economies involving more strangers. In order to stop the sharpening of management problems, improvement policies counter to human instincts become necessary. Our research results are closely related to resolve some of the problems by using accounting institutions. For example, since the institutionalization of the quarterly report promotes the short-termism, its rectification is necessary. Also, in order to correct the distortion of corporate compensation structure, the SEC oversees the disclosure of remuneration for middle-ranking worker and is seeking full-fledged institutionalization. Implementation of these accounting policies are strongly supported by our research results.

Short-Termism, Excessive Executive Compensation, Discounting Behavior, fMRI Experiment

Cite this paper
Hidetoshi Yamaji , Masatoshi Gotoh , Yoshinori Yamakawa . "Short-Termism, Excessive Executive Compensation, and the Discounting Traits of Managers - by Using fMRI Experiment." Universal Journal of Accounting and Finance 8.1 (2020) 1 - 20. doi: 10.13189/ujaf.2020.080101.