Behavioural Biases of Japanese Institutional Investors: fund management and corporate governance

Abstract

Abstract:This study examines the behavioural biases of Japanese institutional investors and discusses implications for their role in corporate governance, based on the findings of a questionnaire survey of fund managers carried out in 2003. Statistical analysis of the survey results reveals a short-term bias in fund managers' investment time horizons, herding, and self-marketing to improve the appearance of portfolio performance under the pressure either of customers or of institutional restraints. We conclude that institutional investors' behaviour contradicts their role as shareholders.

Change and continuity in Japanese corporate governance

“…Second, reductions in debt financing were most prevalent among financially sound firms (Arisawa & Miyajima, 2005;Suto & Toshino, 2005). Not only did this place greater financial pressures on Japanese banks, but it created a situation in which increasingly distressed banks were unwilling and/or unable to assist distressed firms or restructure their loan portfolios.…”

“…As a result of these changes, Japanese firms are facing an increasingly heterogeneous set of shareholder expectations (Hoskisson, Hitt, Johnson, & Grossman, 2002;Thomsen & Pedersen, 2000;Suto & Toshino, 2005). The interests of institutional investors can no longer be considered homogeneous, with a sharp increase in the role of arm's-length institutional investors from foreign and domestic origins.…”

“…In particular pension funds and investment trusts have gained increased prominence in the Japanese market (Fukao, 1999;Inoue, 1999). In contrast to affiliated investors, these market investors are more performance-oriented, particularly given regulation for increased financial disclosure for pension funds (Suto & Toshino, 2005).…”

Japanese keiretsu: Past, present, future

“…Indeed, there is evidence that reliance on bank financing may be associated with pressures toward overinvestment in order to draw on financing from the main bank (Wu & Xu, 2005) leading to lower financial performance (Bernotas, 2005;Inoue, 1999;Miyajima & Kuroki, 2007). One explanation for these findings is that banks act first as "creditors," rather than shareholders, emphasizing low risk strategies and asset protection, and encouraging borrowing (Bernotas, 2005;Morck & Yeung, 2006;Suto & Toshino, 2005). This more limited financial network may represent an under-recognized source of risk (Isobe et al, 2006).…”

The link between corporate social performance and financial performance: empirical evidence from Japanese firms

“…Second, the stagnant economy since the end of the 1990s has caused Japanese investors to focus on short-term financial performance and to be less sensitive to CSR with respect to firm valuation for investees. Suto and Toshino (2005) find short-term behaviour bias in Japanese institutional investors. Third, Japanese investors' attitudes may have further shifted toward risk mitigation since the global financial crisis compared to the attitudes of global market investors.…”