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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
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    References listed on IDEAS

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    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).
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    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

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