Nguyen, Pascal (2012): The impact of foreign investors on the risk-taking of Japanese firms. Forthcoming in: Journal of the Japanese and International Economies
Download (169kB) | Preview
Consistent with a bank-centered governance system, Japanese firms exhibit an exceptionally low level of performance variability. The increased involvement of foreign investors motivated by shareholder value is thus likely to have triggered a major shift in their risk-taking behavior. My results confirm this assumption as all standard measures of performance volatility appear to have significantly increased with the level of foreign ownership. Controlling for endogeneity provides higher point estimates supporting anecdotal evidence that foreign investors have targeted firms taking unusually low risk. Overall, the evidence highlights the considerable impact that this category of investors can have on a firm’s decisions and, by consequence, on its performance.
|Item Type:||MPRA Paper|
|Original Title:||The impact of foreign investors on the risk-taking of Japanese firms|
|Keywords:||foreign ownership; monitoring; risk taking; performance volatility|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance|
|Depositing User:||Pascal Nguyen|
|Date Deposited:||24. May 2012 13:00|
|Last Modified:||11. Feb 2013 20:29|
Acharya, V., Amihud, Y., Litov, L., 2011. Creditor rights and corporate risk-taking. Journal of Financial Economics 102, 150-166.
Adams, R., Almeida, H., Ferreira, D., 2005. Powerful CEOs and their impact on corporate performance. Review of Financial Studies 18, 1403–1432.
Adams, R., Ferreira, D., 2010. Moderation in groups: Evidence from betting on ice break-ups in Alaska. Review of Economic Studies 77, 882–913.
Aggarwal, R., Erel, I., Ferreira, M., Matos, P., 2011. Does governance travel around the world? Evidence from institutional investors. Journal of Financial Economics 100, 154–181.
Ahmadjian, C., Robbins, G., 2005. A clash of capitalisms: Foreign shareholders and corporate restructuring in 1990s Japan. American Sociological Review 70, 451-471
Amihud, Y., Lev, B., 1981. Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics 12, 605–617.
Baba, N., 2009. Increased presence of foreign investors and dividend policy of Japanese firms. Pacific Basin Finance Journal 17, 163-174.
Bertrand, M., Mullainathan, S., 2003. Enjoying the quiet life? Corporate governance and managerial preferences. Journal of Political Economy 111, 1043–1075
Chan, L., Lakonishok, J., Sougiannis, T., 2001. The stock market valuation of research and development expenditures. Journal of Finance 56, 2431-2456.
Chen, X., Harford, J., Li, K., 2007. Monitoring: which institutions matter? Journal of Financial Economics 86, 279–305
Cheng, S., 2008. Board size and the variability of corporate performance. Journal of Financial Economics 87, 157–176.
Coles, J., Daniel, N., Naveen, L., 2006. Managerial incentives and risk-taking. Journal of Financial Economics 79, 431–468.
Cronqvist, H., Fahlenbrach, R., 2009. Large shareholders and corporate policies. Review of Financial Studies 22, 3941-3976.
Dahlquist, M., Robertsson, G., 2001. Direct foreign ownership, institutional investors, and firm characteristics. Journal of Financial Economics 59, 413-440.
David, P., Yoshikawa, T., Chari, M., Rasheed, A., 2006. Strategic investments in Japanese corporations: Do foreign portfolio owners foster underinvestment or appropriate investment? Strategic Management Journal 27, 591-600.
Dechow, P., Sloan, R., 1991. Executive incentives and the horizon problem: an empirical investigation. Journal of Accounting and Economics 14, 51-90.
Dittmar, A., Mahrt-Smith, J., Servaes, H., 2003. Corporate liquidity. Journal of Financial and Quantitative Analysis 38, 11-134.
Fama, E., 1980. Agency problems and the theory of the firm. Journal of Political Economy 88, 288-307.
Ferreira, M., Massa, M., Matos, P., 2010. Shareholders at the gate? Institutional investors and cross-border mergers and acquisitions. Review of Financial Studies 23, 601–644.
Ferreira, M., Matos, P., 2008. The colors of investors’ money: the role of institutional investors around the world. Journal of Financial Economics 88, 499–533.
Gillan, S., Starks, L., 2003. Corporate governance, corporate ownership, and the role of institutional investors: a global perspective. Journal of Applied Finance 13, 4–22.
Glejser, H., 1969. Test for heteroskedasticity. Journal of the American Statistical Association 64, 316–323.
Gompers, P., Ishii, J., Metrick, A., 2003, Corporate governance and equity prices. Quarterly Journal of Economics 118, 107-155.
Hamao, Y., Mei, J., Xu, Y., 2003. Idiosyncratic risk and the creative destruction in Japan. NBER Working Paper No. 9642.
Hamao, Y., Kutsuna, K., Matos, P., 2010. U.S.-style investor activism in Japan: the first ten years. Working paper, University of Southern California and Kobe University.
Hofstede, G., 2001. Culture’s Consequences: International Differences in Work-Related Values. Sage Publications: Beverly Hills, CA, 2nd edition.
Holmstrom, B., 1999. Managerial incentive problems: A dynamic perspective. Review of Economic Studies 66, 169-182.
Jackson, G., Moerke, A., 2005. Continuity and change in corporate governance: comparing Germany and Japan. Corporate Governance: an International Review 13, 351-361.
John, K., Litov, L., Yeung, B., 2008. Corporate governance and risk-taking. Journal of Finance 63, 1679-1728.
Kang, J., Stulz, R., 1997. Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan. Journal of Financial Economics 46, 3-28.
Konishi, M., Yasuda, Y., 2004. Factors affecting bank risk taking: Evidence from Japan. Journal of Banking and Finance 28, 215-232.
Kothari, S. P., Laguerre, T., Leone, A., 2002. Capitalization versus expensing: Evidence on the uncertainty of future earnings from capital expenditures versus R&D outlays. Review of Accounting Studies 7, 355-382.
Larcker, D., Rusticus, T., 2010. On the use of instrumental variables in accounting research. Journal of Accounting and Economics 49, 186-205.
Leuz, C., Lins, K., Warnock, F., 2009. Do foreigners invest less in poorly governed firms? Review of Financial Studies 22, 3245-3285.
Low, A., 2009. Managerial risk-taking behavior and equity-based compensation. Journal of Financial Economics 92, 470-490.
May, D., 1995. Do managerial motives influence firm risk reduction strategies? Journal of Finance 50, 1291–1308.
Nagaoka, S., 2006. R&D and market value of Japanese firms in the 1990s. Journal of the Japanese and International Economies 20, 155–176.
Nguyen, P., 2011. Corporate governance and risk-taking: Evidence from Japanese firms. Pacific Basin Finance Journal 19, 278–297.
Nguyen, P., Nivoix, S. and M. Noma, 2010. The valuation of R&D expenditures in Japan. Accounting & Finance 50, 899–920.
Okada, Y., 2005. Competition and productivity in Japanese manufacturing industries. Journal of the Japanese and International Economies 19, 586-616.
Ono, H., 2010. Lifetime employment in Japan: Concepts and measurements. Journal of the Japanese and International Economies 24, 1-27.
Petersen, M., 2009. Estimating standard errors in finance panel data sets: Comparing approaches. Review of Financial Studies 22, 435-480.
Sah, R., Stiglitz, J., 1986. The architecture of economic systems: hierarchies and polyarchies. American Economic Review 76, 716–727.
Sah, R., Stiglitz, J., 1991. The quality of managers in centralized versus decentralized organizations. Quarterly Journal of Economics 106, 289–295.
Shleifer, A. Vishny, R., 1986. Large shareholders and corporate control. Journal of Political Economy 94, 461–488.
Shleifer, A. Vishny, R., 1997. A survey of corporate governance. Journal of Finance 52, 737-783.
Smith, C., Stulz, S., 1985. The determinants of firms’ hedging policies. Journal of Financial and Quantitative Analysis 20, 391–405.
Wei, S., Zhang, C., 2006, Why did individual stocks become more volatile? Journal of Business 79, 259-292.
Wright, P., Kroll, M., Krug, J., Pettus, M., 2007, Influence of top management team incentives on firm risk taking. Strategic Management Journal 28, 81–89.
Zhou, X., 2001, Understanding the determinants of managerial ownership and its relationship to firm performance, Journal of Financial Economics 62, 559-571.