Corporate Governance, Employment, and Financial Performance of Japanese Firms: A Cross-Country Analysis

Abstract

This study examines whether the sustained lower profitability and market valuation of Japanese firms compared to global peer firms can be explained by the structure of insider dominate board of directors and the employment system which hinders flexible employment adjustments by using crosscountry data. Firstly we show that level of outside director ratio and flexibility of employment adjustment both differ consistently across 27 countries in the analyzed period. We show that these two factors significantly explain observed variation of financial performance across countries significantly. In addition, we show that not only do these two factors have significant explanation power over the relatively poor performance of Japanese firms, but also over the better financial performance and growth rate of US firms.

BOD characteristics and firm performances: Evidence from Indonesia

“…This refers to Bauer et al (2008), where shareholders and stakeholders prefer BOD independence in Japan because it has a great commitment and focuses on the value of the company in the long term -not the short term so that BOD independence is usually hired until they retire. Moreover, independent BOD from outside the company is considered more idealistic and more objective, so risk-taking is more likely to be carried out by Arikawa et al (2017). If it is concluded from a performance comparison, insider BOD was only able to record an increase in ROA of 0.6%, while BOD independence was able to change significantly, namely 29%.…”

“…We refer to the regulation from the IDX, namely Kep-305/BEJ/07-2004, which regulates the existence of BOD independence until 2019 but has been abolished since 2019 through regulation Kep-00183/BEI/12-2018. Considering that BOD independence comes from outsiders, the significance notes are idealistic, and objective (Arikawa et al, 2017) have a great commitment and focus on the value of the company in the long term -not the short term so that BOD independence in Japan is usually hired until they retire (Bauer et al, 2008).…”