Japanese Corporate Governance: Structural Change and Financial Performance
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Japanese Corporate Governance: Structural Change and Financial Performance Asli M. Colpana,dToru Yoshikawab, Takashi Hikinoc, Hiroaki Miyoshi a Institute for Technology, Enterprise and Competitiveness, Doshisha University, Karasuma Imadegawa, Kamigyo-ku, Kyoto 602-8580, Japan. E-mail: [email protected] b DeGroote School of Business, McMaster University, 1280 Main Street West, Hamilton, Ontario, Canada L8S 4M4. E-mail: [email protected] c Graduate School of Management, Kyoto University, Yoshida Honmachi, Sakyo-ku, Kyoto 606-8501, Japan. E-mail: [email protected] d Institute for Technology, Enterprise and Competitiveness, Doshisha University, Karasuma Imadegawa, Kamigyo-ku, Kyoto 602-8580, Japan. E-mail: [email protected]
This paper analyzes institutional and legal changes related to corporate governance and their impact on financial performance in Japan since the second half of the 1990s. We attempt to address two issues systematically: (1) how much the governance reforms of Japanese firms transformed the conventional system of alliance capitalism and managerial control; and (2) what economic outcomes those governance changes have yielded. As the Commercial Code and other legal and institutional frameworks were revised, Japanese firms experienced shifts in terms of stock ownership, corporate control and managerial organizations. Our empirical results show that the influence of new ownership composition and reformed governance mechanisms on financial performance remains varied. We find that certain factors, such as foreign and financial investors, functioned positively, while others, like the executive officer system and stock options, had little or negative performance effect. Japanese management apparently appeased market investor pressure by superficially institutionalizing various governance reforms, while enhancing financial performance through strategic modifications. Asian Business & Management (2007) 6, S89–S113. doi:10.1057/palgrave.abm.9200240 Keywords: corporate governance; Japanese management; institutional and legal changes; performance impact
Received 28 February 2007; revised 31 May 2007; accepted 31 July 2007
Asli M. Colpan et al. Japanese Corporate Governance
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Introduction Previous studies on Japanese corporate governance have largely attempted to address universal issues of agency relationships in the Japanese context, in which some institution-specific factors such as bank monitoring and keiretsu affiliation play an important role. However, the corporate governance model and practices based on such mechanisms have been facing rising pressures from multiple sources since the early 1990s. Indeed, there have been substantial changes in several aspects of corporate governance in Japan. This paper analyzes institutional and legal changes regarding corporate governance in Japan and their impact on financial performance since the second half of the 1990s. There were two major triggers, one domestic and the other international, that can account for such changes. First, t
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