Large Shareholders, Shareholder Proposals, and Firm Performance: Evidence from Japan

Abstract

Manuscript Type Empirical Research Question/Issue Previous studies, primarily based on evidence from the United States, fail to link shareholder activism to firm performance, with one explanatory factor being that the legal and regulatory system in the United States limits the anti‐director rights of shareholders. This study is motivated by the question of whether legally binding shareholder resolutions can pressure management to improve firm performance and to enhance firm value. Research Findings/Insights By investigating 135 publicly listed Japanese firms which received shareholder resolutions from 2004 to 2010, this study finds supportive evidence for shareholder proposals. Announcement‐associated abnormal returns are higher for firms receiving election‐related proposals by large sponsors, than those unrelated to board election. Furthermore, an improving trend begins to appear in the post‐resolution year, particularly significant for firms receiving proposals to remove board members. Theoretical/Academic Implications This study provides new evidence suggesting that large shareholder activism in Corporate Japan can perform roles that used to be played by main banks before the 1990s. It also suggests that in countries where there is no active takeover market, large shareholders can effectively discipline entrenched management through active engagement. Practitioner/Policy Implications This study offers insights to corporate managers on the importance of communicating with large shareholders and addressing their concerns.

Institutional Ownership and Firm Performance under Stakeholder-Oriented Corporate Governance

“…This implies that institutional investors help mitigate agency issues such as under-investment problems. Second, shareholder activism can effectively pressure managers in Japanese corporations as needed [30]. As a result, their active engagement in monitoring activities has the potential to enhance firm value.…”

“…Therefore, institutional shareholders are expected to mitigate agency issues. Second, the rise in shareholder activism in recent decades has been effective in strategically applying pressure to managers in Japanese corporations [30]. These points imply that institutional shareholders have begun to play a role in the Japanese stakeholder-oriented system.…”

How cross‐shareholding influences financial reporting: Evidence from Japan

“…However, after the Japanese economic bubble burst in the 1990s, these close relationships between companies began to fade with the series of financial and accounting reforms initiated by the government. During that time, larger active shareholders, such as institutional shareholders (outsiders), started to become more involved in corporate decisions in Japan (Seki, 2005; Yeh, 2014). Cross‐shareholding relationships declined gradually from the mid‐1990s to the early 2000s, and the consolidation of companies among keiretsu groups accelerated in the early 2000s (Brown & Company Ltd., 2001; Nitta, 2008).…”

“…However, after the Japanese economic bubble burst in the 1990s, these close relationships between companies began to fade with the series of financial and accounting reforms initiated by the government. During that time, larger active shareholders, such as institutional shareholders (outsiders), started to become more involved in corporate decisions in Japan (Seki, 2005;Yeh, 2014).…”

Ownership Concentration and Performance Recovery Patterns in the European Union

“…In studies concentrated on managerial propensity towards diversification as detrimental for shareholders' returns, the seminal paper of Amihud and Lev [6] concluded that large block shareholders are more likely to discourage the engagement of management in mergers and acquisitions that reduce shareholders' value; their results have been supported by other research [7][8][9][10], although Lane et al [11] have contradicted these findings. The other stream of research based on agency theory is more concerned with mechanisms available to shareholders aimed at inducing managers to maximize profits and shareholders' value, building on the assumption that large shareholders and, more generally, a more concentrated ownership, are able to reduce excessive diversification and enhance corporate performance, by a stricter management monitoring [12][13][14]. Thus, Dzingai and Fakoya [15] find that effective corporate governance through a small effective board and monitoring by an independent board result in increased firm financial performance.…”