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The impact of foreign investors on the risk-taking of Japanese firms

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  • Nguyen, Pascal

Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 26 (2012)
Issue (Month): 2 ()
Pages: 233-248

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Handle: RePEc:eee:jjieco:v:26:y:2012:i:2:p:233-248

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Foreign ownership; Monitoring; Risk taking; Performance volatility;

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Citations

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Cited by:
  1. Aman, Hiroyuki & Nguyen, Pascal, 2013. "Does good governance matter to debtholders? Evidence from the credit ratings of Japanese firms," Research in International Business and Finance, Elsevier, Elsevier, vol. 29(C), pages 14-34.
  2. Boubaker, Sabri & Nguyen, Pascal & Rouatbi, Wael, 2012. "Large shareholders and firm risk-taking behavior," MPRA Paper 39005, University Library of Munich, Germany.
  3. Takechi, Kazutaka, 2013. "Understanding the productivity effect of M&A in Japan: An empirical analysis of the electronics industry from 1989 to 1998," Japan and the World Economy, Elsevier, Elsevier, vol. 25, pages 1-9.

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