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Performance Impact at the Board Level: Corporate Governance in Japan

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Author Info

  • Ralf Bebenroth

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Donghao Li

    (Graduate School of Business Administration, Kobe University, Japan)

Abstract

Economic literature provides mixed results about what really matters at corporate governance and the board room. Some research covering different countries suggests that size and ratio of board room matters. The purpose of this paper is to investigate the performance impact at the board level in the corporate governance of Japanese companies. We investigate the size as well as the ratio of outside directors and outside auditors and apply them to all Japanese manufacturing companies listing on the First Stock Exchange in Tokyo, a set of 821 companies. To do this, we put Japanese companies into three groups: 1st traditional companies (without outside directors), 2nd new Japanese companies (which appointed outside directors) and 3rd companies who decided to apply to the US-Style system. In our sample we found evidence that board size did not matter but we found correlation between the ratio of outside directors / outside auditors and the performance of the companies. Furthermore, traditional Japanese companies showed the weakest performance, US-style Japanese companies the strongest. This result is highly important as it says that Japanese companies are better off having a high ratio of outside directors and outside auditors. In addition to this, Japanese companies might think about the advantages of introducing a US-style-system. At least in our research with only a few numbers of US-style companies, they outperformed the others.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp179.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 179.

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Length: 28 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:kob:dpaper:179

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Keywords: Corporate Governance; board room; US-style corporate governance; JUS-style corporate governance; Outside ratio; Board size;

References

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  1. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
  4. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February.
  5. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
  6. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
  7. Learmount, Simon, 2002. "Corporate Governance: What Can Be Learned From Japan?," OUP Catalogue, Oxford University Press, number 9780199252916, September.
  8. Stephen P. Ferris & Murali Jagannathan & A. C. Pritchard, 2003. "Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments," Journal of Finance, American Finance Association, vol. 58(3), pages 1087-1112, 06.
  9. Dore, Ronald, 2000. "Stock Market Capitalism: Welfare Capitalism: Japan and Germany versus the Anglo-Saxons," OUP Catalogue, Oxford University Press, number 9780199240616, September.
  10. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  11. Eisenberg, Theodore & Sundgren, Stefan & Wells, Martin T., 1998. "Larger board size and decreasing firm value in small firms," Journal of Financial Economics, Elsevier, vol. 48(1), pages 35-54, April.
  12. Black, Bernard, 2001. "The corporate governance behavior and market value of Russian firms," Emerging Markets Review, Elsevier, vol. 2(2), pages 89-108, June.
  13. Hyun-Han Shin & Rene M. Stulz, 2000. "Firm Value, Risk, and Growth Opportunities," NBER Working Papers 7808, National Bureau of Economic Research, Inc.
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