IDEAS home Printed from https://ideas.repec.org/a/mof/journl/ppr029a.html
   My bibliography  Save this article

Ownership Structure and Corporate Governance: Has an Increase in Institutional Investors f Ownership Improved Business Performance?

Author

Listed:
  • Hideaki Miyajima

    (Professor, Graduate School of Commerce, Waseda University)

  • Takaaki Hoda

    (Associate Professor, Faculty of Global Business, Showa Women's University)

Abstract

A dramatic increase in shareholder ownership by domestic and foreign institutional investors, along with the decline of the main bank system, is one of the greatest changes in the governance structure of Japanese companies in recent years. This paper aims to identify the effects of the rapid change in the shareholder ownership structure on corporate governance in Japan.Based on a comprehesive database concerning major shareholders in fiscal 1990- 2008 that specifies the attributes of shareholders to the maximum possible extent, this paper indicated the following points.First, by examining the selecting stocks among institutional investors, we found that both domestic and foreign institutional investors not only make the selection based on companies f size and stock liquidity but also prefer high-quality stocks in terms of profitability, stability and financial soundness. In contrast, banks and insurance companies continue to invest in low-quality companies. Furthermore, compared with domestic institutional investors, foreign ones have a strong tendency to attach importance to formal governance features (size of the board of directors and presence or absence of outside directors). Foreign institutional investors also consistently have a strong home bias. Second, by testing the relationship between ownership and performance, we found that, whereas shareholder ownership by banks and insurance companies has negative effects on enterprise value and corporate earnings, share ownership by domestic and foreign institutional investors has positive effects. This finding indicates that even if a rise in domestic and foreign institutional investors f ownership ratio is based on an institutional investor bias or a home bias, or if the impact on the stock price is due to a demand shock, an increase in share ownership by domestic and foreign institutional investors will enable them to exercise the monitoring effect through actions such as indicating the possibility of an exit (possibility of selling off their holdings of shares) and voicing of complaints.

Suggested Citation

  • Hideaki Miyajima & Takaaki Hoda, 2015. "Ownership Structure and Corporate Governance: Has an Increase in Institutional Investors f Ownership Improved Business Performance?," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 11(3), pages 361-394, July.
    • Handle: RePEc:mof:journl:ppr029a
    as

    Download full text from publisher

    File URL: https://warp.da.ndl.go.jp/info:ndljp/pid/11217434/www.mof.go.jp/english/pri/publication/pp_review/ppr029/ppr029a.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Julian Franks & Colin Mayer & Hideaki Miyajima, 2014. "The Ownership of Japanese Corporations in the 20th Century," The Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2580-2625.
    2. Mayer, Colin, 2014. "Firm Commitment: Why the corporation is failing us and how to restore trust in it," OUP Catalogue, Oxford University Press, number 9780198714804.
    3. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 229-259.
    4. Del Guercio, Diane, 1996. "The distorting effect of the prudent-man laws on institutional equity investments," Journal of Financial Economics, Elsevier, vol. 40(1), pages 31-62, January.
    5. Aoki, Masahiko, 2010. "Corporations in Evolving Diversity: Cognition, Governance, and Institutions," OUP Catalogue, Oxford University Press, number 9780199218530.
    6. Christian Leuz & Karl V. Lins & Francis E. Warnock, 2010. "Do Foreigners Invest Less in Poorly Governed Firms?," The Review of Financial Studies, Society for Financial Studies, vol. 23(3), pages 3245-3285, March.
    7. Hiraki, Takato & Inoue, Hideaki & Ito, Akitoshi & Kuroki, Fumiaki & Masuda, Hiroyuki, 2003. "Corporate governance and firm value in Japan: Evidence from 1985 to 1998," Pacific-Basin Finance Journal, Elsevier, vol. 11(3), pages 239-265, July.
    8. Takato Hiraki & Akitoshi Ito & Fumiaki Kuroki, 2003. "Investor Familiarity and Home Bias: Japanese Evidence," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 10(4), pages 281-300, December.
    9. Aggarwal, Reena & Erel, Isil & Ferreira, Miguel & Matos, Pedro, 2011. "Does governance travel around the world? Evidence from institutional investors," Journal of Financial Economics, Elsevier, vol. 100(1), pages 154-181, April.
    10. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    11. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    12. Flath, David, 1993. "Shareholding in the Keiretsu, Japan's Financial Groups," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 249-257, May.
    13. MIYAJIMA Hideaki & OGAWA Ryo, 2012. "Understanding Change in Board Composition: Determinants of board composition and effects of outside directors (Japanese)," Policy Discussion Papers (Japanese) 12013, Research Institute of Economy, Trade and Industry (RIETI).
    14. Ahearne, Alan G. & Griever, William L. & Warnock, Francis E., 2004. "Information costs and home bias: an analysis of US holdings of foreign equities," Journal of International Economics, Elsevier, vol. 62(2), pages 313-336, March.
    15. Iwatsubo, Kentaro & Tonogi, Konomi, 2007. "Foreign Ownership and Firm Value―Identification through Heteroskedasticity―," Economic Review, Hitotsubashi University, vol. 58(1), pages 47-60, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ushijima, Tatsuo, 2020. "More-money and less-cash effects of diversification: Evidence from Japanese firms," Japan and the World Economy, Elsevier, vol. 56(C).
    2. Mari Sako & Katsuyuki Kubo, 2018. "Professionals On Corporate Boards In Japan: How Do They Affect The Bottom Line?," Working Papers halshs-01770191, HAL.
    3. Kabir, Md Nurul & Miah, Mohammad Dulal & Ali, Searat & Sharma, Parmendra, 2020. "Institutional and foreign ownership vis-à-vis default risk: Evidence from Japanese firms," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 469-493.
    4. Hiroshi Gunji & Kazuki Miura & Yuan Yuan, 2023. "The effect of the Bank of Japan's Exchange‐Traded Fund purchases on firm performance," Asian Economic Journal, East Asian Economic Association, vol. 37(3), pages 346-370, September.
    5. Hideaki Miyajima & Ryo Ogawa & Takuji Saito, 2017. "Changes in Corporate Governance and Top Executive Turnover: The Evidence from Japan," NBER Working Papers 23812, National Bureau of Economic Research, Inc.
    6. Naoshi Ikeda & Kotaro Inoue & Sho Watanabe, 2018. "Enjoying the Quiet Life: Corporate Decision-making by Entrenched Managers," NBER Chapters, in: Corporate Governance (NBER-TCER-CEPR Conference), National Bureau of Economic Research, Inc.
    7. Sunday Ojochenemi Yusufu & Arome Isaac Yusufu & Mohammed Habeeb Abdullahi, 2022. "Privatization and the Efficiency of Selected Enterprises in Nigeria," Journal of Social Sciences Advancement, Science Impact Publishers, vol. 3(1), pages 20-25.
    8. Miyajima, Hideaki & Ogawa, Ryo & Saito, Takuji, 2018. "Changes in corporate governance and top executive turnover: The evidence from Japan," Journal of the Japanese and International Economies, Elsevier, vol. 47(C), pages 17-31.
    9. Shu Ling Lin & Jun Lu & Jung-Bin Su & Wei-Peng Chen, 2018. "Sustainable Returns: The Effect of Regional Industrial Development Policy on Institutional Investors’ Behavior in China," Sustainability, MDPI, vol. 10(8), pages 1-28, August.
    10. Masanori Orihara & Yoshiaki Ogura & Yue Cai, 2022. "Borrowing in Unsettled Times and Cash Holdings Afterwards," Working Papers 2207, Waseda University, Faculty of Political Science and Economics.
    11. SAKO Mari & KUBO Katsuyuki, 2019. "Professionals on Corporate Boards: How do they affect the bottom line?," Discussion papers 19010, Research Institute of Economy, Trade and Industry (RIETI).
    12. Dasgupta, Amil & Fos, Vyacheslav & Sautner, Zacharias, 2021. "Institutional investors and corporate governance," LSE Research Online Documents on Economics 112114, London School of Economics and Political Science, LSE Library.
    13. Kei Ikeda, 2017. "Impact of Japanese Banks' Strategic Stockholdings on their Cost of Capital," Bank of Japan Working Paper Series 17-E-4, Bank of Japan.
    14. Schmid, Stefan & Roedder, Felix, 2021. "Gaijin invasion? A resource dependence perspective on foreign ownership and foreign directors," International Business Review, Elsevier, vol. 30(6).
    15. Johan JIDINGER & MIYAJIMA Hideaki, 2020. "Does Regulation Matter?: Effects of Corporate Governance Reforms on Relational Shareholding in Japan," Discussion papers 20003, Research Institute of Economy, Trade and Industry (RIETI).
    16. Ikeda, Naoshi & Inoue, Kotaro & Watanabe, Sho, 2018. "Enjoying the quiet life: Corporate decision-making by entrenched managers," Journal of the Japanese and International Economies, Elsevier, vol. 47(C), pages 55-69.
    17. Kim, Hyonok & Yasuda, Yukihiro, 2021. "Economic policy uncertainty and earnings management: Evidence from Japan," Journal of Financial Stability, Elsevier, vol. 56(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. MIYAJIMA Hideaki & HODA Takaaki & OGAWA Ryo, 2015. "Does Ownership Really Matter? The role of foreign investors in corporate governance in Japan," Discussion papers 15078, Research Institute of Economy, Trade and Industry (RIETI).
    2. Hideaki Miyajima & Takaaki Hoda & Ryo Ogawa, 2016. "Does Ownership Really Matter? : The Role of Foreign Investors in Corporate Governance in Japan," Working Papers halshs-01643915, HAL.
    3. Abdioglu, Nida & Khurshed, Arif & Stathopoulos, Konstantinos, 2013. "Foreign institutional investment: Is governance quality at home important?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 916-940.
    4. MIYAJIMA Hideaki & OGAWA Ryo, 2016. "Convergence or Emerging Diversity? Understanding the impact of foreign investors on corporate governance in Japan," Discussion papers 16053, Research Institute of Economy, Trade and Industry (RIETI).
    5. Mishra, Anil V., 2013. "Foreign ownership in Australian firms," Research in International Business and Finance, Elsevier, vol. 28(C), pages 1-18.
    6. Fang Cai & Francis E. Warnock, 2004. "International diversification at home and abroad," International Finance Discussion Papers 793, Board of Governors of the Federal Reserve System (U.S.).
    7. Hali J. Edison & Francis E. Warnock, 2004. "U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 691-704, August.
    8. Giofré, Maela, 2013. "International diversification: Households versus institutional investors," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 145-176.
    9. Holland, Sara B. & Warnock, Francis E., 2003. "Firm-level access to international capital markets: evidence from Chilean equities," Emerging Markets Review, Elsevier, vol. 4(1), pages 39-51, March.
    10. Mishra, Anil V. & Ratti, Ronald A., 2011. "Governance, monitoring and foreign investment in Chinese companies," Emerging Markets Review, Elsevier, vol. 12(2), pages 171-188, June.
    11. Alderighi, Stefano & Cleary, Siobhan & Varanasi, Padmasai, 2019. "Do institutional factors influence cross-border portfolio equity flows? New evidence from emerging markets," Journal of International Money and Finance, Elsevier, vol. 99(C).
    12. Jung, Chan Shik & Lee, Dong Wook & Park, Kyung Suh, 2009. "Can investor heterogeneity be used to explain the cross-section of average stock returns in emerging markets?," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 648-670, June.
    13. Chou, Julia & Zaiats, Nataliya & Zhang, Bohui, 2014. "Does auditor choice matter to foreign investors? Evidence from foreign mutual funds worldwide," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 1-20.
    14. Anil Mishra, 2014. "Foreign Ownership and Firm Value: Evidence from Australian Firms," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 21(1), pages 67-96, March.
    15. Tsafack, Georges & Guo, Lin, 2021. "Foreign shareholding, corporate governance and firm performance: Evidence from Chinese companies," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    16. Garner, Jacqueline L. & Kim, Won Yong, 2013. "Are foreign investors really beneficial? Evidence from South Korea," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 62-84.
    17. Ferreira, Miguel A. & Matos, Pedro, 2008. "The colors of investors' money: The role of institutional investors around the world," Journal of Financial Economics, Elsevier, vol. 88(3), pages 499-533, June.
    18. Hiraki, Takato & Ito, Akitoshi, 2009. "Investor biases in Japan: Another pathology of Keiretsu," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 100-124, January.
    19. Hamberg, Mattias & Mavruk, Taylan & Sjögren, Stefan, 2013. "Investment allocation decisions, home bias and the mandatory IFRS adoption," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 107-130.
    20. Abdioglu, Nida & Bamiatzi, Vassiliki & Cavusgil, S.Tamer & Khurshed, Arif & Stathopoulos, Konstantinos, 2015. "Information asymmetry, disclosure and foreign institutional investment: An empirical investigation of the impact of the Sarbanes-Oxley Act," International Business Review, Elsevier, vol. 24(5), pages 902-915.

    More about this item

    Keywords

    Ownership structure; investment criteria; corporate governance; corporate performance; institutional investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mof:journl:ppr029a. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Policy Research Institute (email available below). General contact details of provider: https://edirc.repec.org/data/prigvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.